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Fund Spy

Are Your Mutual Fund's Watchdogs Eating the Kibble?

Fund directors don't always invest in all the funds they oversee.

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As part of the Stewardship Grade for mutual funds, Morningstar regularly looks at how much fund managers invest in the offerings they run. That's because we think managers who invest alongside shareholders signal their conviction in their investment process and in the fees charged.

We think the same logic also applies to the fund board trustees who oversee the offering as shareholders' fiduciary advocates. We think board members who invest in the funds they govern are more likely to advocate for superior management and lower fees.

As part of the board-quality section of the Stewardship Grade, we consider what trustees own collectively in the funds they supervise, but it's telling to dig deeper and see which offerings they own. We think it's possible that fund directors pay closer attention to specific offerings when they have their own money on the line. By the same token, if a fund isn't attractive enough to draw investments from several directors, maybe it isn't good enough for you either. We concede that not every fund in a lineup may be suitable for all directors, given their tolerance for risk and investment goals. Still, we don't think it's unreasonable to expect a diverse group of trustees to collectively spread their investments across each of the funds they oversee.

Laura Pavlenko Lutton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.