What action to take when your fund has a change of manager

As in every walk of life, fund managers sometimes change role within the same company, change company, take a career break or change career entirely.

Sometimes the choice is theirs and sometimes it isn't, particularly if performance has been consistently disappointing. This means that sometimes it is good news but at other times it is bad news that your fund is moving under new management.

At Chelsea, under usual circumstances we will automatically remove a fund from the Chelsea Selection if the manager changes and downgrade it to a generic 'hold' rating. Likewise, a fund that is not on the Chelsea Selection, but that is covered in our annual Fund Review, will also have its rating moved to a generic 'hold'.

We do this because we like to meet the new manager and undertake our fund research due diligence to make sure we think they are up to the job. After this meeting, depending on our confidence in the new manager, the rating could be upgraded to a generic 'buy', remain on 'hold' or even be downgraded to a 'sell'.

Very occasionally, if we know the new manager well, regard them highly and believe that the investment process will remain intact, we will keep the fund on the Selection list and it will maintain its generic 'buy' rating.

Hold or fold?

When we move a fund to a generic 'hold' – or indeed to a 'buy' or 'sell' – there is no water-tight rule on what action you, as a self-directed investor should take. Each manager change should be considered on its own merits and, importantly, there is no rush for you to make a decision.

If the situation arises for you, here are four points to consider to help you make your decision:

  1. Will the investment process stay the same, or will there be substantial changes to how the fund is run and in what it invests? If there will be changes, are you comfortable with them?

  2. What experience does the new manager have when it comes to running this particular type of fund? The manager may have run a similar type of fund before, so have a look at their track record. If they haven’t, do you think they can make the transition successfully?

  3. What kind of support does he/she like and need and do they have access to this resource?

  4. Does the new manager have any other commitments – do they manage other funds or have responsibility for other personnel? If so, do you think they can cope with the extra work load?

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Published on 18/06/2018