Newspaper article THE JOURNAL RECORD

Funds Take Advantage of Hiring outside Managers

Newspaper article THE JOURNAL RECORD

Funds Take Advantage of Hiring outside Managers

Article excerpt

BOSTON -- Sometimes it's better for mutual fund managers to admit they lack certain skills than to prove it to themselves and shareholders the hard way.

That's what Bennington Capital Management, which has run bond funds for almost seven years, decided in late 1995 when the money- management firm wanted to offer stock funds.

Instead of trying to run its Accessor Small-MidCap Portfolio itself, Bennington went outside and hired Symphony Asset Management to manage the stock fund. "We don't have an expertise managing stock funds, so why not leverage off someone else's expertise," said Ravi Deo, Bennington's chief investment officer. Bennington's choice proved to be a good one. Accessor Small-MidCap rose 46.5 percent in the past 12 months, ranking No. 13 of 359 small- capitalization stock funds tracked by Bloomberg Fund Performance. The fund now has $205 million in assets. It's not uncommon for funds to hire outside managers. About 14 percent of the industry's more than 4,740 stock funds are run by outsiders, according to Financial Research, a Boston-based research firm. Vanguard Group, Scudder Kemper Investments, Charles Schwab, Federated Investors and John Hancock Funds all retain outside firms to manage some funds. Outsiders often offer the best choice; their firms have managed pension money and private investors' funds for years. They can be cheaper than hiring inside managers; the funds can pit the outside firms against each other and reduce the management fees they pay. And, it's easier to fire a poorly performing manager when he doesn't sit next to you. The average U.S. stock fund run by an outside manager is generating annual returns that are about 1.5 percentage points better than rival internally managed funds, said Ray Liberatore, an analyst at Financial Research. "A lot of fund companies are going to experts in the industry to manage their funds and they're getting their money's worth," he said. Some of the top-performing outside-managed funds of the past few years along with the Accessor fund are the Hartford Capital Appreciation Fund and the Heritage Capital Appreciation Trust, Liberatore said. …

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