Practical analysis for investment professionals
02 September 2014

What Is the Role of Merit in a Mutual Fund Manager’s Career? (Podcast)

In the July/August 2014 issue of the Financial Analysts Journal, Gary E. Porter and Jack W. Trifts published an article, “The Career Paths of Mutual Fund Managers: The Role of Merit,” which shows that merit plays a substantial role in the length of a mutual fund manager’s career. Notably, managers who underperform their peers are more likely to lose their jobs.

We got the chance to talk with Porter and Trifts about their research.

“Early on, I became interested in mutual fund performance research, especially performance persistence, and what struck me was that all of the studies — and even now most of the studies — are focused on fund returns without any consideration of the manager,” Porter said. “I wanted to know: What were the managers doing?”

In the article, Porter and Trifts examine the career performance of solo managers of 2,846 actively managed mutual funds from 1996 to 2008, drawing on data from Morningstar. They find that turnover among this group was high; testing the monthly performance results, they also find that relative performance is a key determinant of career success for a mutual fund manager.

“When you look over long periods of time, even some of the very, very best mutual fund managers will have lackluster periods following periods of very superior performance,” Trifts said, “and you wonder how much of that is . . . driven by randomness and luck.”

To hear more about their research and its important implications for mutual fund managers, listen to the interview above or download the MP3.

You can read the full article on the Publications website.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

About the Author(s)
Abby Farson Pratt

Abby Farson Pratt was an assistant editor at CFA Institute. Previously, she worked at the Denver Post and the University of North Carolina Press. Pratt earned the Claritas™ Investment Certificate and holds a BA in journalism and English from the University of North Carolina at Chapel Hill.

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