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Mutual Fund Managers Potential Assessment Part 1

When you purchase shares of a mutual fund you automatically get the services of a mutual fund manager or a group of mutual fund professionals. Their main responsibility is to manage your investment portfolio by deciding which securities to purchase. You enjoy the services of a mutual fund manager at a small price due to the fact that you share the cost with many other investors who have chosen the same mutual fund. This article will give you several hints on what characteristics should a mutual fund manager possess.

The Hiring of a Mutual Fund Manager

The process of choosing the most appropriate mutual fund manager for you represents almost the same process as that of finding an employee. In order to determine the appropriateness of a potential candidate, you should allocate enough time to examine his/her experience and achievements. After this you should verify the information with a third neutral party.

The management of your investment portfolio can be done by:

  • One mutual fund manager (one decision maker),
  • A group of mutual fund managers (decision making is split among several persons), or
  • A group of mutual fund managers, who independently make the decisions.

Mutual Fund Manager Tenure

Many consider the relevant experience of a mutual fund manager as one of the most important factors that should guide your choice. The number of years during which the manager has been with the mutual fund plays an important role and many recommend mutual fund managers with at least five years in the field. On the other hand, the importance of tenure has been refuted by many, since a lot of good mutual fund managers have left to go to another mutual fund. Additionally, there are many instances of fund managers that have spend a lot of time with one mutual fund and the latter has not been defined with good performance ratios. This leads to the conclusion that tenure is not of such a crucial importance.

Nevertheless, a mutual fund manager with experience is preferred to someone who has none at all. You should also pay special attention to the amount of time the fund manager has been dealing with mutual funds. Additionally, both education and investment awards play an important role in the credibility of the fund manager. You should not ultimately rely on the past experience of the mutual fund manager, because bad past experience do make the manger cautious, but may also make him/her reluctant to grab newly arisen opportunities when the right time has come.

When considering an investment with a new mutual fund, carefully study the biography of the manager that governs it. This is also true when deciding to switch to a new mutual fund manager. You should consider the time s/he has spent with the fund and its performance during his/her governance. Additionally, if the fund manager has governed another fund, examine the performance of the latter so that a reasonable valuation of the performance can be done.

Past Successes

When deciding on a mutual fund manager a comparison with his/her colleagues is never redundant. Additionally, it is useful to find out about the performance of the manager during different market conditions in order to understand whether s/he can respond to the market changes in a promptly manner. A good fund manager is the one that adds value to the performance of the mutual fund.

Additionally, a sign for an adept fund manager is the continuous sequence of achievements, not one time or sporadic events of successes. Furthermore, don't fall in the common mistake of disregarding humble managers, who don't brag with their achievements or the once that are not under the lights of the media. An important factor of the success of many fund managers is luck. Keep it in mind as a potential facet of the achievements of every fund manager and do not mix it up with his/her actual expertise.  Another factor beyond the skills of the fund manager is the category in which the mutual fund is. Therefore, the performance results may be due to the category in which the fund itself falls, not the skills of the manager. As a result a comparison between category coequals is more appropriate.

Style Adherence

A valuable fund manager is the one that adheres to the style of the mutual fund. He has to show passion and stickiness to the predetermined investment strategy. By choosing such a mutual fund manager, you avoid the risk of ending up with a large cap fund that invests in small stocks or a value fund that instead put resources in growth stocks. A fund manager who doesn't adhere to the pre-agreed points may cause the creation of a portfolio that contradicts your financial situation and risk tolerance.

Avoid dealing with fund managers that speculate with indexes. From time to time statistics about the performance of mutual fund performance compared to the S&P 500 is done. Some sly fund managers manage to outperform the S&P 500 by mimicking it, while mutual fund managers claim that the fund is not of an index type. Whenever you have doubts about the exact nature of the fund, namely whether it is an index fund or not, invest straight in an index fund to avoid the uncertainty.

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