Want the managers of your mutual fund to feel your pain if it loses money? Odds are they won't. That's because only 49 percent of mutual funds have at least one manager who is also an investor in the fund, according to data provided by Morningstar.
It has only been since 2005 that the Securities and Exchange Commission began requiring mutual fund managers to disclose how much they have personally invested in their own funds.
Although fund managers aren't required to invest in their funds, and many produce strong returns without a personal stake, it's encouraging when managers believe enough in their performance to put their own money on the line.
Plus, funds with larger investments by their managers have generated some of the strongest returns over the last five years. To determine if a manager has invested in his or her mutual fund, look at the fund's Statement of Additional Information. Fund companies will often include a link on their websites, along with links to the fund's prospectus and other documents. The statement will include a range of how much the manager has invested in the fund. The ranges, though, are quite broad, such as $50,001 to $100,000 or $500,000 to $1 million.
Large-cap U.S. stock mutual funds, intermediate-term bond mutual funds and other core mutual fund holdings are where a manager's ownership is particularly telling, more so than niche funds that invest in small corners of the market, says Russel Kinnel, director of mutual fund research at Morningstar.
"Sometimes funds come into existence because someone in marketing thinks it's a really good idea." Kinnel says. "And the manager may be going along only half-heartedly."Associated Press