Mutual Funds: Fund Managers

Allusions to sports parallels often seep their way into discussions of financial matters, but there probably isn't a comparison from the sports world apt enough to convey the importance of a fund manager to the success of a fund.

But here's an attempt: Think of the fund manager as playing the roles of both superstar hoops coach Phil Jackson and superstar player Shaquille O'Neal. The manager, usually along with analysts, has to draw up the investment game plan and research the securities that meet the fund's goals (the Phil Jackson part). The manager is also the point man that makes the moves into and out of stocks (the O'Neal part). And when a manager is a star performer, he or she can draw hordes of fans by virtue of the marquee status.

For investors, a fund manager's long-term performance should be a major factor in deciding which fund to choose. Whatever type of fund you're looking for (value, technology, small-cap fund), the criteria for choosing a manager doesn't change: The best fund managers are the ones whose funds have consistently outperformed those of their peers over several years. Another key point: If you're choosing a fund with a special focus, say one of the many Internet funds that has popped up in recent years, it's best to pick a manager who has achieved success within that arena, and not a Johnny-dot-com-lately who was running a value fund six months ago.

To determine a manager's performance, you can't just look at the performance of the fund, because those returns may be the work of a former manager who has recently moved on. Follow the manager's performance from fund to fund. And once you decide to invest in a fund, keep your eye out for any changes at the helm of the ship. If your manager moves on, and the performance wanes after he or she leaves, you may want to look elsewhere as well.

A growing trend within the fund world is having team managers. Firms have several reasons for doing so: It may discourage the star system that can lead to exorbitant salaries for managers, it may protect them from losing clients if one member of the team leaves for another firm, and it may help to have a team with diverse investing backgrounds. But, so far, there isn't any conclusive evidence showing that either the more the merrier or that too many chefs spoil the meal. So, for investors, the standard rules apply: Check the manager or managers' record before getting in.

Who's Your Manager?

In the "Fund Moves, Manager Changes" area of the Personal Finance section, TheStreet.com constantly adds updates when a fund shuffles its management ranks. Also, TheStreet.com keeps a watchful eye on what goes on with those minding the mutual-fund mint. Here are a few items that offer more basic advice and background on managers:

How Can I Uncover More About a Fund Manager's Background?

Don't Let Your Fund Managers Manage You