The following is excerpt from Daisy Maxey | August 3, 2017 | WSJ.com |
When mutual-fund managers depart, fearful investors often follow.
They probably shouldn’t.
A new study by Morningstar Inc. MORN -0.34% examines the impact of the addition or departure of a portfolio manager on the performance of actively managed stock and bond funds domiciled in the U.S. in its database between January 2003 and December 2016.
On average, there is no change in a fund’s future performance after a management change of any kind, the investment-research firm found. Because it is possible that the impact of a new manager coming on or an old one leaving may not be felt for months, Morningstar considered results up to two years after a change was made. But no matter how it looked at the data, there was, on average, no change in performance.
Nevertheless, investors generally overreact to fund manager changes, and withdraw money from the fund. The reaction of investors even strengthens over time, persisting up to 36 months after the management change, Morningstar found.
Fear of the unknown
Investors are generally averse to change, so when there is turnover in a team they’re comfortable with, they grow concerned and feel they have to act, says Madison Sargis, a quantitative analyst at Morningstar and one of the report’s authors, with Kai Chang, a director of quantitative research. It’s not just mom-and-pop investors who are falling into this behavioral trap, she says, but financial advisers as well.
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