When choosing an investment manager, there are various important considerations to make. You’ll want to consider overall objectives, process and performance, what specifically you’ll be investing in, and of course, fees. With so many options for you to choose from, it’s crucial to ensure that your interests directly align with those of your investment manager. What could be more revealing of a manager’s interests and goals than being personally invested in their own funds?
Do managers with "skin in the game" have better performance?
Beyond solidifying the alignment of shareholder and manager interests, manager ownership has been found to positively affect fund performance. In a study conducted by Morningstar, funds with a manager who has a significant amount of their own money invested in the fund were more likely to outperform than funds whose managers have little or none of their cash on the line².
The graphic below based on Morningstar’s findings illustrates how manager ownership was correlated with success, where success is defined as a fund that outperformed its category peer group average and has not been liquidated³.
Manager ownership matters.
Whether you call it “having skin in the game”, “eating your own cooking” or “putting your money where your mouth is”,
Beaumont Capital Management (BCM) subscribes to the notion that investment managers should be shareholders in their own funds or strategies. In fact, BCM Portfolio Manager and Managing Partner David Haviland has 100% of his investible assets including his retirement assets, in BCM strategies, aside from the cash set aside for his boys’ educations. Please note that BCM is an ETF strategist and does not currently offer mutual funds.
The Securities and Exchange Commission (SEC) requires mutual funds to disclose ownership by portfolio managers in defined ranges, but the same is not true for investment strategies or models. When you evaluate an investment manager, be sure to ask where they are personally invested. If it isn’t in the fund, strategy, or model you’re considering, can they tell you why? If it isn’t already, manager ownership should become one of your top criteria when evaluating an investment.
Sources & Disclosures:
1 ,3 Kinnel, Russel. Morningstar. “Does Manager Ownership Lead to Better Fund Performance?” Study completed between February 2009 to
February 2016. https://www.morningstar.com/videos/680232/does-manager-ownership-lead-to-better-fund-perform.html
2 Katzeff, Paul. Investors.com. “Does Your Mutual Fund Manager Have Skin in the Game? These Do” November 2016.
https://www.investors.com/etfs-and-funds/mutual-funds/does-your-mutual-fund-manager-have-skin-in-the-game-these-do/
Copyright © 2018 Beaumont Financial Partners, LLC DBA Beaumont Capital Management (BCM). All rights reserved.
The Morningstar study referenced in this piece examined only mutual funds and not investment strategies or other investment vehicles. The conclusions of the study’s author, as well as other included suggestions, are his own based on his research. The BCM strategies are not mutual funds.
Many factors affect the value and performance of investments. The information presented here is not meant to imply there is a causal
relationship between portfolio manager ownership and improved performance.
Beaumont Capital Management (BCM) is a separate division of Beaumont Financial Partners, LLC, an SEC registered investment advisor. BCM
offers tactical, defensively-oriented strategies using long only ETFs across multiple asset classes with domestic, international and global
exposure.
The material contained in this piece is for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument, nor should it be construed as financial or investment advice. The information presented in this report is based
on data obtained from third party sources. Although it is believed to be accurate, no representation or warranty is made as to its accuracy or completeness.
