A recent article published by Morningstar makes the following statement:
“What do you look for in a fund with a relatively new manager?
The first thing is a track record at other funds that indicates the manager has skill. Next, you want other key fundamentals like low costs, high manager investment, a good strategy, and a good fund company.”
The articles goes on to focus on those managers who have at least $1 million invested in their current funds and who had a good track record in managing previous funds. Unfortunately, despite the author’s efforts, the thesis of the article is not supported even by Morningstar’s own ratings of previous funds, let alone by Alpholio™’s RealAlpha™ measure of the current or previous funds:
|Current Fund||Rating||Previous Fund||Rating||Real-Alpha™|
|Fidelity Small Cap Stock (FSLCX)||* *||Fidelity Small Cap Growth (FCPGX)||* * *||-0.81%|
|Fidelity Equity Dividend Income (FEQTX)||* *||Fidelity Value Discovery (FVDFX)||* * *||-0.49%|
|Fidelity Magellan (FMAGX)||*||Fidelity Trend (FTRNX)||* * * *||1.02%|
|Fidelity Municipal Income 2015 (FMLCX)||NR||NA||NA||0.29%|
|GoodHaven (GOODX)||NA||Fairholme (FAIRX)||* * *||0.09%|
|Ariel Discovery (ARDFX)||NR||NA||NA||-6.05%|
|Royce Special Equity Multi-Cap (RSEMX)||NR||NA||NA||-1.47%|
|PIMCO EqS Pathfinder (PTHDX)||* *||Mutual Global Discovery (TEDIX)||* * * * *||3.14%|
|Fairholme Focused Income (FOCIX)||* * *||Fairholme (FAIRX)||* * *||0.09%|
|Akre Focus Retail (AKREX)||* * * * *||FBR Focus (NA)||NA||2.8%|
In the above table, the RealAlpha™ figure pertains to the previous fund, if available, or to the current fund, otherwise. For the most part, the previous fund ratings (or the current fund RealAlpha™ measures) do not support the thesis that the current funds will do well, even in the presence of a substantial investment by their own managers.