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Should You Run for the Exits When a Fund Manager Leaves?

By WTOP Staff

Why is Bill Gross’ exit from PIMCO front page news? Type “Bill Gross” into Google search and out pops over 1.7 million listings. Clearly, Gross is someone to watch. Gross is the co-founder and former co-chief investment officer of Pacific Investment Management Company, LLC or PIMCO. His PIMCO Total Return fund, historically an excellent performer, recently returned less than its peers in several years.

Additionally his exit from PIMCO to a fund firm rival, Janus, to manage the unrestrained global bond fund, is accompanied by an U.S. Securities and Exchange Commission’s review for artificially boosting the returns of the PIMCO Total Return ETF.

Are these sufficient reasons to sell a fund? There are many factors to explore when considering whether to jump ship after a manager’s exit. A manager’s departure should be just one consideration.

In the case of the PIMCO Total Return Bond Fund, let’s look at a recent comment by Eric Jacobson, a senior analyst at Morningstar.

“Bill Gross had been synonymous with this fund since its 1987 inception, so his Sept. 26, 2014, resignation was jarring. However, he left behind an enormous staff of talented managers and analysts that he had hired and trained over the years, and they have stepped up to take on important roles in his absence. They include 2013 Morningstar Fixed-Income Fund Manager of the Year Dan Ivascyn.”

Morningstar is confident about the future of Bill Gross’ flagship fund. Does that mean you should be too?

There’s more than one reason for exiting a mutual fund.

5 factors to consider before selling a fund. When a manager leaves, or the returns lag the fund’s peers, you may think about selling. But, before you sell a mutual fund, consider why you bought the fund in the first place. It’s not unusual for a fund to lag on occasion, nor is it a surprise if the manager leaves (most of the time).

Prepare yourself for the selling decision and think about these questions before you sell:

— Why did you initially invest in the fund?

— Were you looking for a particular market segment in which to invest?

— Did you appreciate the style of the manager?

— Is the fund managed by one manager or a team?

— What is the current market environment?

Before even considering whether or not to pull the plug, remind yourself what your goals were by investing in the fund and how they fit with your overall investment strategy. Never sell on a whim. Give both the fund buying and selling decision some analysis and thought.

Next, consider these issues before selling a fund:

1. Did the fund lose significantly more than its peers or benchmark during a year? A big loss can put you on watch. This may suggest several things. Maybe the fund is not adhering to the strategy it claims. This is called “fund drift” and occurs when a fund’s investment style shifts away from its stated objective. Maybe the fund’s approach is on a decline. That said, a 1-year performance is a relatively short period of time during which to evaluate an investment.

2. Did the fund change its strategy to fit market conditions? During some periods, large-cap stock returns trounce those of small-cap value. Other times, bonds are beating the returns of stocks. In general, these are reasons to maintain a diversified investment portfolio. If you find your large-cap fund is investing in small-cap stocks, you may want to sell. Chasing a particular investment style rarely works and you want to know your investments are allocated the way you prefer.

3. Has your fund underperformed for several years? First, make sure you’re comparing your fund’s performance with the appropriate benchmark. If you own a small-cap fund and you’re comparing returns to the large-cap Dow Jones Industrial Average, then that is an inaccurate comparison. If the fund continues to underperform, year after year, when compared with its benchmark (as stated in the prospectus), it may be time to sell.

4. Have your goals and objectives shifted? For example, if you’re retiring in a few years, you may decide to sell a stock fund and raise extra cash. That way, if the market drops as you’re ready to retire, you’d better uphold your net worth. Or maybe you just need to raise some cash for another use.

5. Does the fund have a high management fee? Consider exchanging the fund for a similar type with a lower management fee. Over time, research shows that it is tough to justify owning a high-fee fund.

6. Final bonus reason to sell. Is the fund manager leaving? Look at this reason in conjunction with the others. Consider the possibility that the fund is team-managed. In that case, the departure of one manager is less important. Although it is usually not a singular reason to sell a fund, in accord with other explanations, a fund manager leaving may tip the scale in favor of a sale.

Barbara Friedberg, MBA, MS , is a portfolio manager, consultant, website CEO and author of “How to Get Rich; Without Winning the Lottery.” Learn more about money and pick up her newest free investing book at Barbara Friedberg Personal Finance.com .

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Should You Run for the Exits When a Fund Manager Leaves? originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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