Occasionally a change in the manager of a mutual fund makes financial headlines and influences the flow of investor dollars. A high-profile departure such as Bill Gross of PIMCO a few years ago can cause hundreds of millions of dollars, or more, to leave a fund. But there are many fund manager changes during the year that don’t create a stir.
Morningstar decided to analyze fund manager changes in detail, and issued a report. The bottom line is that changing a fund manager usually doesn’t matter. Most changes are expected and planned for by the fund company. Someone who’s been working with the outgoing manager for a while takes over and keeps the investment process in place.
In short, we find, on average, there is no change in future performance following a fund-management change. Yet, investors overreact and subsequently pull money from these funds. Our findings suggest that the fund industry handles succession planning far better than investors react to such changes.