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Rekenthaler Report

The Cult of the Portfolio Manager

An idea whose time has come--and gone.

The Stars Arise
The cult of the mutual fund portfolio manager began during the 1960s, to ill effect. "Performance managers" who owned the "glamor stocks" of "go-go companies" thrashed the major stock indexes, attracted large inflows and glowing press reports, and then smacked into a six-year wall. Happily, after encountering that wall, their funds would not pay capital gains taxes for many years to come. Unhappily, that was because those funds had realized massive net losses and there weren't many remaining shareholders to deplete their tax benefits.

The cult behaved better upon its return, during the bull market of the 1980s. This next generation of mutual fund heroes, by and large, invested more soberly than its predecessors. Vanguard's John Neff was conservative by any standard, favoring the cheapest of blue chips. But even the growth-stock stars, such as Fidelity's Peter Lynch or Acorn's Ralph Wanger, knew how to survive bear markets. Unlike the go-go managers, the 1980s' breed of mutual fund superstar retained most shareholders during the downturns.