`You Have To Know Who's Calling The Shots'

After portfolio managers Tom Conlin and Mary Kay Bourbulas left SteinRoe's High-Yield Municipal Fund to run Strong Municipal Bond Fund, the fortunes of the two funds reversed. SteinRoe's, which had ranked in the top quartile for national muni funds for four years running, sank into the bottom 2% in 1992, while Strong's anemic fund leapt into the top 1%--and is still way ahead of SteinRoe's.

This is one example of why it's important to know the face behind your fund. Choosing a fund based on long-term performance and investment strategy is sound. But if the manager responsible for those happy returns bolts, you could end up with a dud. "Ultimately, it's the sailors and not the ships that dictate the performance," says Don Phillips, publisher of Morningstar Mutual Funds. "You have to know who's calling the shots and what latitude they have."

Unfortunately, that's not always easy for the public to do. Only last July did the Securities & Exchange Commission require fund companies to name portfolio managers in shareholder reports or prospectuses. And this often doesn't give a true picture. Fund companies worry that if a star manager leaves, investors will follow. Increasingly, therefore, they describe their funds as run by teams when in fact, claims Phillips, "somebody, somewhere, calls most of the shots."

LONELY INSIGHT. To be sure, there are cases where a manager's impact is limited--such as with index or money-market funds. And the amount of support the manager gets can be critical. Sheldon Jacobs, editor of The No-Load Fund Investor, found that the manager's importance varies inversely with the size of the fund group's staff. "Fidelity has huge internal turnover, and yet it clearly is not hurting them," he says. In equities alone, Fidelity Investments has 75 research analysts, 22 assistant analysts, and 25 traders.

Some fund groups, such as American Funds and Twentieth Century, are successfully run by committee. But it's generally thought that group decisions diminish returns. "Consensus won't create great ideas," says Ken Heebner, manager of CGM funds. "Basically, a good investment idea is pretty unusual and has to be a somewhat lonely insight. If the merit of the idea is visible to a lot of people, it quickly cuts into the price."

And while performance is the first gauge of a manager's success, individual styles and philosophies vary widely. Do you want a manager willing to take a bold contrarian stand? Or a manager who follows a formula? Take Heeb-

ner's CGM Capital Development fund and Charles Albers' Guardian Park Avenue. Both are growth funds with almost $600 million in assets. Both have pretax 10-year returns of roughly 80%. But their styles are entirely different.

Heebner aggressively picks stocks for explosive growth over short periods. He eschews diversifying and holds only about 25 stocks concentrated in a few sectors. Some 50% of his portfolio is in banks, for example, "because they've been out of favor." He looks for deals driven by earnings potential. But he calls himself an "opportunistic" manager, with an eclectic style that isn't pinned to a fixed system.

HEART ATTACK. By contrast, Guardian's Albers uses a sophisticated quantitative model to help him decide when and what to buy and sell. Guardian is widely diversified, with 270 stocks, no one of which makes up more than 2.5% of the whole. Just looking at performance wouldn't be the best clue to choosing between these two. For instance, someone with low risk tolerance could have a heart attack watching Heebner's fund gyrate.

Fortunately, as mutual funds have grown in popularity, so has the amount of print and pixels devoted to their managers. Research reports, such as those from Morningstar and The Value Line Mutual Fund Survey are available at public libraries, while many business publications and television shows provide regular interviews with fund managers. Most fund companies have active shareholder relations departments that can answer questions. You can find phone numbers in fund prospectuses and magazine listings. In March, Louis Rukeyser, host of Wall Street Week, launched a monthly newsletter featuring interviews with the names behind the numbers. In the May issue of Louis Rukeyser's Mutual Funds ($48 a year; 800 393-9922, ext. 3333), Brandywine Fund manager Foster Freiss describes how he picks companies that can capitalize on societal trends.

When it comes to evaluating performance, it helps to "think of the fund's track record as the resume of a person you're about to employ to manage your money," says Michael Stolper, who has his own investment advisory firm in San Diego, and whose free brochure, How to Select an Investment Manager, contains tips on hiring personal and fund managers (800 426-6502). Look for at least a three-year tenure with a given fund for consistency. The longer the history, the better the results and the greater the chance that success will continue. But, Stolper warns, it's important to look at annual returns. A five-year record may be skewed by one great year. "The really gifted managers will do well three out of five years," he says.

Don't blithely choose this year's top performers. "Some of the most bizarre characters on the planet have brilliant short-term records that then sputter out," says Rukeyser. Indeed, he points out that Peter Lynch, who gave Fidelity Magellan the best overall fund record in the 1980s, never ranked more than 16th in any year. Where possible, see how managers did during such down years as 1973-74, 1987, and 1990. Look for a coherent policy: Even though Heebner has an eclectic style, his concentrated growth approach is consistent. Review quarterly and monthly returns, says Carl Gargula, a managing director at Ibbotson Associates, because yearend figures can be misleading: "They sell the losers, take some capital gains, and boost returns that way."

Ultimately, who runs your fund is as important as its performance. You wouldn't trust your kids with an unknown sitter. So why give your savings to a stranger?


-- Find a manager with at least three years on the job, and compare the returns with those of similar funds.

-- Check annual returns to make sure a high overall ranking doesn't come from one or two good years. Look for your manager to be ahead three out of five years.

-- How did the manager weather corrections, crashes, or bear markets, such as those in 1973-74 and 1987?

-- Is the manager's investment philosophy coherent and based on a disciplined approach you can live with?

-- Keep an eye on changes. Is a manager leaving? Are the portfolio holdings changing dramatically?


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