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Rating:To Make the Case For Active Management, Eat Your Own Cooking Not Rated 0.0 Email Routing List Email & Route  Print Print
Monday, October 13, 2014

To Make the Case For Active Management, Eat Your Own Cooking

News summary by MFWire's editors

It's an old adage, that diners shouldn't trust chefs who don't seem to eat their own cooking, and the investing world has long applied the logic to mutual funds and their PMs, too. Yet new data from a mutual fund titan makes the case even stronger, and perhaps in the process offers hope for fundsters looking to fight for active management.

MarketWatch columnist Chuck Jaffe highlights new research from American Funds provider Capital Group [profile], which finds an active equity mutual fund portfolio, one where the funds have low expenses and PMs with big stakes, beat out a passive ETF strategy over the past 20 decades by a margin of more than 50 percent. Jaffe takes that and says that "How much money do you have invested in your own fund?" is the single most important question to ask any mutual fund PM.

Tim Armour, management committee chair at the Los Angeles-based mutual fund firm, mentioned the same research last week in an interview about the near-stop in American Funds' net outflows. Steve Deschenes, director of product development for American Funds, tells Jaffe about the findings.

Jaffe points to Brian Posner, former Fidelity PM and former ClearBridge funds chief, as an example of an exec for whom investing in one's own funds was important. Indeed, at ClearBridge, Jaffe writes, Posner required his PMs to invest in their own funds.

The columnist almost seems to be calling on the SEC or Congress to require better disclosure of PMs' fund investments. Such disclosure is currently part of the "statement of additional information" released by each fund.

Perhaps fundsters whose PMs invest heavily in their own funds and who have below average fees, should shout it from the roof tops. The folks at Capital Group are taking a stab at it. 

Edited by: Neil Anderson, Managing Editor

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