When to Follow Your Fund Manager to a New Firm

When a star fund manager jumps to a new firm, their investors are often tempted to follow. After all, these managers have proven track records of success, and investors want to stay on board for the ride. But is it always a good idea to follow your fund manager to a new firm?

The Case for Following

There are a few reasons why investors might want to follow their fund manager to a new firm. First, the manager may be moving to a firm with more resources and support. This could give them the tools they need to perform even better than before. Second, the manager may be moving to a firm with a more compatible investment philosophy. This could be a good thing if you're aligned with the manager's new approach.

Finally, the manager may be moving to a firm with lower fees. This could be a big advantage, especially if you're investing for the long term.

The Case Against Following

However, there are also some reasons why investors might want to hesitate before following their fund manager to a new firm. First, it's important to remember that past performance is not indicative of future results. Just because a manager has had success at one firm doesn't mean they'll be successful at another.

Second, it's important to consider the new firm itself. Does it have a good track record? Does it have a strong investment team? Does it have a culture that's compatible with the manager's?

Finally, it's important to consider your own investment goals and risk tolerance. Are you comfortable with the manager's new investment strategy? Are you willing to pay the new firm's fees?

When to Follow

So, when should you follow your fund manager to a new firm? Here are a few things to consider:

• The manager's track record. How long has the manager been successful? Have they outperformed their benchmark? Have they had success at different firms?
• The new firm's track record. Does the new firm have a good track record of managing money? Does it have a strong investment team? Does it have a culture that's supportive of the manager?
• The manager's investment strategy. Is the manager's new investment strategy aligned with your own investment goals and risk tolerance?
• The fees. Are the new firm's fees reasonable? Are they higher or lower than the previous firm's fees?

If you're considering following your fund manager to a new firm, here are a few things you can do:

• Do your research. Learn as much as you can about the new firm, its track record, and its investment philosophy.
• Talk to the manager. Ask the manager about their plans for the new fund and why they're moving to the new firm.
• Get a second opinion. Talk to a financial advisor to get their opinion on whether or not you should follow the manager to the new firm.

According to a recent study by Morningstar, fund managers who switch firms tend to outperform their benchmark in the first three years at their new firm. However, this outperformance tends to fade over time. "Following a fund manager to a new firm is a risky proposition," says Morningstar analyst Russel Kinnel. "There's no guarantee that the manager will be able to replicate their success at the new firm. Investors should carefully consider all the factors involved before making a decision."

Should you?

So, should you follow your fund manager to a new firm? It depends on your individual circumstances. If you're comfortable with the manager's track record, the new firm's track record, and the manager's new investment strategy, then following them may be a good option for you. However, it's important to remember that there is no guarantee of success.

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