Mutual Fund Monday - Beverly Goodman

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Respect Your Elders -- They Make Better Fund Skippers

10/28/02 - 07:15 AM EST

Beverly Goodman

Perhaps a little desperate for a silver lining amid the storm clouds blanketing the stock market, Morningstar gave the 8,169 domestic stock funds it tracks the once-over and found evidence of what most investors should already know: Experience matters.

Domestic stock funds run by managers (or management teams) who have been at their fund's helm for more than 20 years have lost far less than the average U.S. equity fund.

And yes, the corollary also is true: Domestic stock pickers with fewer years under their belts performed worse than average.

"In general, you'd expect people who have 'been there, done that' to be able to handle the rough times of a bear market better than their less experienced counterparts," says Morningstar fund analyst Dan Culloton, who conducted the survey.

Still, the difference was surprisingly stark.

Funds managed by people with more than 20 years of tenure lost 9.8% on an annualized basis between the market's peak (as measured by the Wilshire 5000) on March 24, 2000, and Oct. 16, 2002. Over the same period, the average domestic stock fund lost an annualized 16%. Funds managed by managers with less than four years of tenure -- the typical fund manager tenure -- lost an annualized 17.5%.

Fewer than 60 funds (not counting all share classes) in the Morningstar database have managers who have been at the helm for more than two decades -- and the bulk of the funds that do fall into the hybrid, large-blend and large-value categories. Clearly, that conservative bent helped mitigate losses in the disastrous equities market of the past two years.

Likewise, while Morningstar did not perform a similar study of tenure during the boom years, "I'd expect you'd see these same managers lagging a little because of the conservative nature of their funds," Culloton says.

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Mutual Fund Monday - Beverly Goodman



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