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Fund Spy

How to Protect against Manager Changes--and How Not To

Manager changes are bound to happen, so here are a few things to think about.

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It might seem reasonable to shy away from funds with managers above a certain age. After all, you plan to hold your fund a long time; you don't want to buy it only to see the manager retire six months later. And because money management is a demanding, yet well-compensated field, it's understandable why you'd suspect that a long-tenured manager might be planning to spend the next 10 years on the golf course rather than keep trudging into a messy office to pore over arcane footnotes in financial statements.

However, over years of covering mutual funds, we've learned that it doesn't pay to spend much energy on that concern. Some of the managers who have seemed most likely to retire soon stayed on the job--and remained effective--for many years. In the meantime, hundreds of managers have departed for reasons having nothing to do with age.

In other words, the possibility that the manager might change is indeed a risk to consider when choosing a fund, but the manager's age is just one factor in that calculation. That point was hammered home once more last week, when, for unexplained reasons, First Eagle lost manager Charles de Vaulx, who was not remotely near retirement age. (De Vaulx had been sole manager of  First Eagle Global (SGENX),  First Eagle Overseas (SGOVX), and  First Eagle U.S. Value (FEVAX), and he ran  First Eagle Gold (SGGDX) with an associate manager.) So how should you approach this issue?

Gregg Wolper has a position in the following securities mentioned above: SGOVX, SGENX, HACAX. Find out about Morningstar’s editorial policies.