Many fund managers don't buy own picks

Morningstar Inc. today released a study indicating that many fund managers live by a philosophy of “invest as I say, not as I do.” The Chicago-based fund tracker found that 47% of the managers of U.S. stock funds reported no ownership in their funds at all. Morningstar also found that 61% managers of foreign stock funds do not hold positions in their funds, compared with 66% of managers of taxable bond funds, 71% of managers of balanced funds and 80% of managers of municipal bond funds. The study was the first comprehensive look at fund ownership among the some 6,000 funds in the firm’s database, said Russel Kinnel, director of fund research at Morningstar. “It indicates that there is a wide range of manager commitment levels to their funds,” Mr. Kinnel said. “[The information] is an important new tool in helping people select funds. Managers are telling you a lot with their own investments.” The study also looked at the firm’s own analyst “picks” and “pans.” These are funds selected based on whether they have a competitive advantage or disadvantage that would affect returns over the long haul. In looking at these funds, which included187 picks and 73 pans, Morningstar found that managers of those funds invested nearly seven times more money in the picks than in the pans. Managers of pick funds on average invested $354,000 in those funds, compared with managers of the pan funds, who invested an average $52,000. And the managers of 32 of the picks invested at least $1 million in the funds. “I don’t think it’s an accident that managers tend to avoid investing in their own funds when they are gimmicky, market-driven funds,” Mr. Kinnel said. “If the fund is designed with good fundamental characteristics for the long haul, they’re more likely to invest in it.” The study noted a couple of situations in which a manager may not want to invest. For instance, it cited the manager of a single-state municipal bond fund for a state other than the one in which they live, because they would not benefit from the tax breaks. Also managers who are citizens of foreign countries would not invest in their own funds if their country prohibits them from investing in U.S. funds. Fund firms are required to disclose to the Securities and Exchange Commission how much each manager invests in his or her funds.