Posts Tagged ‘managements’

Once you have decided to invest money, whether you invest in individual securities or mutual funds, whether you invest $100 million or $100 per month, you will find yourself immersed in the domain of investment management.  For most, this idea is either a welcome change to their existing routine or it is a frightening thought (often exceedingly frightening).

However, investment management need not be such a daunting concept. In fact, it can rather simple if you have the right people working for you (and in the case of mutual fund investments, before you invest so much as a single cent with a fund manager, you are essentially “convinced” that you are working with the right people).

Of course, investing in a mutual fund makes the task of investment management quite a bit simpler. However, there are still some very basic tasks you should endeavor to complete every quarter at the very least to ensure that your original investment objectives are not only being met by your current investment portfolio but that those investments have not made fundamental changes to their individual approach, objectives, risks and strategy. In some cases, this can be as simple as going back to the Prospectus that is published annually by the fund company and exploring their Fund Objective.

Remember, when your investment advisor recommends a fund (or you find one yourself that meets your individual investment objectives and fits within your total asset allocation model) your decision will often be predicated by how well the fund’s objective can help you achieve yours. Therefore, if the fund’s objective changes then you could see a fundamental change to its performance and an obvious change to how that specific fund will contribute to your own investment objectives.

In addition to Fund Objective, some of the key areas of focus when it comes to your investment management tasks should be:

Management Profile – has it changed? If so, why? You can find this information primarily in the Prospectus or on popular analysis sites like Morningstar, but if there has been a change then you will want to investigate by digging deeper on the fund company’s website and searching its press releases. Understand the cause behind the change and determine as best as you can whether such a change can be tolerated by your portfolio.

Market Performance versus Index and Category.  If your fund has been able to exceed Index and Category returns consistently over the past 3 years but all of a sudden has fallen behind, understand why. If the fund in question has a high beta (meaning it is more sensitive than the market’s fluctuations) then that might be sufficient during times of poor market performance. However, if the markets are steady as a whole and your fund underperforms, what is the reason? What caused this instance of under-performance and are such changes acceptable to your portfolio? Again, Morningstar does a great job of analyzing fund performance against index and category.

How has the underlying Portfolio changed in the fund, if at all? This part is a little more involved and requires a bit of digging on the investor’s part, but is extremely vital. Remember that your investment decision was based on several factors, including asset allocation, management style and investment quality. You should understand if any of these factors have changed considerably since you made your purchase or last-reviewed the fund. If there have been changes to any of these three areas (asset allocation, investment style and investment quality) you will need to re-evaluate and/or re-balance the rest of your portfolio. Often, it is simply easier to replace the offending fund with another (there are plenty) that meets the original investment requirements. However, it is strongly advised that you understand the basis for the change before making hasty trades in and out of a fund and since most fund companies will provide management commentaries about such fundamental changes such information is often easily obtained.

Unfortunately, it may seem from the above that the task of investment management is still fairly complicated . This is actually quite far from the truth. With the resources available online, the “chore” can be rather illuminating and educational. Most importantly, it allows investors to get a deeper understanding of the funds and investments that are intended to help them achieve their financial goals. To recap, investment management when it comes to a mutual fund portfolio can be as simple as:

>> Reviewing the Fund’s Objective

>> Understanding changes in fund management, if any.

>> Comparing fund performance to index and category performance and investigating changes in trends.

>>  Reviewing changes and abnormalities in the fund’s underlying portfolio of securities.