Was it the fund or was it the manager?
These days it may not be easy to tell. Dozens of visible portfolio managers switched jobs during the year, making it hard for investors to keep track of all the players, sorting out what returns were earned under whose reign.
Of the roughly 6,200 stock and bond portfolios in existence, more than 550 had already switched managers by mid-December of this year, according to researcher Morningstar Inc. of Chicago. Considering that many transitions typically take place at the end of December, the 1996 total could surpass last year's 587 changes and 1994's tally of 593.
The most prominent career move was Jeffrey Vinik's decision to step down as the head of the Fidelity Magellan Fund and open his own firm, Vinik Asset Management.
Fidelity also lost some other big-name managers during the year, including Robert Beckwitt, Michael Gordon and Brian Posner. All told, 56 Fidelity stock and bond funds had a management change during 1996, although most involved people switching roles while staying at the firm. Fidelity engineered a major restructuring of its stock portfolios in March.
Dozens of rival fund groups also experienced reshuffling within their ranks. The Colonial U.S. Fund for Growth had several changes, Morningstar reports.
When a fund's manager leaves the company--voluntarily or not--it raises a red flag. As a shareholder, you have to ask yourself whether an underlying problem prompted the change. Check for faltering performance and other signals such as rising expenses or a drastic shift in the fund's composition.
Fidelity Magellan, for instance, has not beaten the Standard & Poor's 500 since 1993, and Vinik raised eyebrows before his departure for--among other things--shifting a large slice of the fund's assets first into technology stocks and later into bonds.
The official word on Vinik's departure is that he wanted to go into business for himself. Certainly, first-rate managers often seek greener pastures and are able to find them.
This is especially true when a top stock or bond picker wants a bigger stake in the action than merely a salary and bonus. Mary Lisanti left New York and her job at the helm of the Bankers Trust Investment Small Cap Fund to run a similar portfolio at Strong Funds, in part because the Milwaukee firm offered her an ownership position.
Even after a manager leaves, the company may sill tout his or her performance numbers in advertisements, other marketing literature and prospectuses.
"Our portfolio managers make the investment decisions, but they're backed by a deep research team that stays," said Robyn Tice, a Fidelity spokeswoman in Boston.
Also, independent fund-evaluation services such as Morningstar, Value Line and Lipper Analytical Services stick to their rankings and ratings, whether or not the manager who compiled a fund's results is still around.
In cases where a manager jumped from one family to another, you now may find the same performance numbers utilized at both firms. The old fund will continue to cite the track record, and so can the manager's new portfolio, thanks to a June decision by the Securities and Exchange Commission.
That ruling involved Elizabeth Bramwell, who left as manager of the Gabelli Growth Fund in February 1994 to start her own portfolio, Bramwell Growth. Bramwell sought permission to bring her track record with her, and the SEC said she could.
However, such permission--now being sought by other funds--applies only to performance numbers contained in a fund's prospectus.
By contrast, fund advertising falls under the oversight of the National Assn. of Securities Dealers, a Washington-based self-regulatory organization. The NASD won't allow managers to advertise performance numbers earned at another firm.
"This means that if I was employed at Fidelity and go out on my own, I can't take out an ad saying I managed such-and-such fund at Fidelity and made this much money," says Michael Robinson, an NASD spokesman. "I can put that information in a prospectus, but not in an ad."
Given the importance of past performance when choosing among funds, and considering the frequency of management changes, one thing seems clear: Investors need to make sure they know who built up a fund's track record--and for how long.