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Monitoring And Managing Your Money Manager




Investment performance does not just happen; there must be a process in place to get superior results. There are nearly 15,000 mutual funds available for you to invest in. How does one decide which one is true for you? Once you select the ones that are right for you, how do your measure your success? Money mangers are people and they must be monitored and measured; they must be held responsible for their results. You do not need to pay very much for average fund performance (just invest in indexes).

Above average fund performance does not happen by accident. To get above average fund performance, you must measure and monitor. If you are not going to do that, hire someone to do it for you or stick with indexes.Once you select a manager, you must monitor them regularly. Past performance is not only no predictor of the future but, in many cases, the past performance was a result of completely different circumstances and possibly completely different people than those managing your account today. I would suggest you use the following eight factors:

1.) The mutual fund should be at least three years old. Does a team or one individual manage the fund? How long has the current team manager been running the portfolio?

2.) The fund should have a minimum of $75 million under management

3.) The holdings must be consistent with the style. They should have no more than 20% of the portfolio invested in unrelated assets classes. For Example: A Large Cap Growth product should hold no more than 20% in cash, fixed income and/or international securities.

4.) Correlation to style or peer group: The fund should be highly correlated to the asset class of the investment option. In other words, if they are managing small company stocks, make sure that they are actually investing in small stocks.

5.) Make sure the mutual funds investment performance is relative to the risk they are taking. You can measure a funds risk by using the Alpha and Sharpe ratios.

6.) The funds performance should be evaluated against its peer group return for the 1,3 and 5 year cumulative return.

7.) The fund expense ratio and fees should not be in the bottom quartile (most expensive).

8.) There should be no perceived organizational problems and the same portfolio management team should be in place for at least two years.Following these eight steps will go a long way in helping you select and monitor a money manager for you. A great resource for this information can be found at Morningstar.

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