When it comes to the topic of portfolio managers investing in funds they manage – sometimes referred to as “eating their own cooking” — there are two things I just don’t understand.
First, why do some investors and financial advisers make such a big deal out of manager not investing in his or her fund?
And, second, why wouldn’t a portfolio manager just invest in his or her fund, even if just for appearance sake?
In essence, there are some good reasons why some managers don’t invest in funds they manage, and that should be considered by the hard-liners who tend to screen-out non-investing portfolio managers.
In the fixed-income space, for example, where investment by managers tends to be lower than in equity funds, there are certain short-term bond strategies and single-state municipal bond funds that won’t always make sense for every manager’s personal portfolio.
But such rare instances are hardly enough to justify that fact that nearly 45% of all portfolio managers tracked by Morningstar Inc. don’t invest a dime in funds they manage.
It is mind-boggling that, in an environment where fund companies and portfolio managers must know how easy it is to identify and screen out managers who won’t eat their own cooking, some managers still don’t.
On that note, we give props to Sammy Simnegar, who manages the $690 million Fidelity International Capital Appreciation Fund (FIVFX).
Mr. Simnegar, who took over management of the fund in January 2008, said he has “100% of my 401(k) money in this fund,” as well as “six figures worth of my personal money.”
That is a serious display of confidence in a strategy.
Mr. Simnegar didn’t share the specific dollar amounts of his personal investment in the fund, but it is clearly enough to bump him past the first two levels of fund manager investments, as tracked by Morningstar.
It only takes a one-dollar investment to qualify, along with about 4% of all portfolio managers, as having invested up to $10,000 in a fund they manage.
Nearly 10% of managers invest between $10,000 and $50,000.
The $50,000-to-$100,000 level in occupied by almost 7% of managers.
With just over 19% of managers, the $100,000-to-$500,000 level is second only to the percentage of managers not investing in their own funds.
Beyond that, 5% of managers invest between $500,000 and $1 million, and just over 9% invest more than $1 million.
Avid Investor Group