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Who’s Managing Your Mutual Fund?

Posted by Larry Doyle on March 29, 2012 7:26 AM |

Can you imagine the Indianapolis Colts hyping season tickets for the upcoming season based upon the success of the team over the last decade with ‘you know who’ under center? Could you picture the Chicago Bulls doing the same after the departure of MJ? How about the Lakers after Magic, the Celtics after Bird, or the Edmonton Oilers after ‘The Great One’ Wayne Gretzky left town?

Sports fans are not stupid—or at least when it comes to this topic. They know that the leader and the team on the field are the keys to future success and that past performance, especially after the departure of the star, is certainly not indicative of future results.

Those investing in mutual funds should make sure they employ the same principle prior to buying tickets—that is, investing—in a fund that may have had significant past success. Why do I raise this topic? Let’s navigate.

In my opinion, the single most important factor to assess prior to investing in a fund is to know the manager. Who is calling the shots? What is this individual’s track record? How long has the manager been running the fund? How strong is his team? I strongly believe that our financial regulators should mandate that these disclosures are highlighted in the marketing materials of all investment funds. If they were, we would not have a situation such as that recently highlighted at The Reformed Broker, which wrote Lying by Ommission: Mutual Funds, Track Records, and Departing Managers:

One of the biggest mistakes fund investors make is buying into a track record without realizing that the managers behind that track record are no longer at the helm. Even worse, in many cases new managers come with new investment philosophies and styles – this means that all the previous performance and historical characteristics of the fund’s “behavior” in different market climates should be discarded. But this concept does not get emphasized at the fund ratings firms – investors are left to dig for manager tenure when a simple asterisk next to the historical returns data would suffice.

And in some cases, an old track record is even played up in the marketing – with no (or vague) mention of the fact that this record has become a non sequitur now that someone else is in charge of the fund. I bring this to your attention because there is a very excplicit example of this type of thing occurring right now that all fund investors should be aware of.

I’m sure that Tad Rivelle, CIO of the TCW Total Return Bond Fund (TGLMX), is a nice and handsome man. I’m also sure that he is smart and doing his very best at the helm of the fund. But in my view, he has no business making the following statement in a press release about his fund’s performance:

“Less traditional fixed income asset classes have delivered strong returns for long-term investors and our outstanding track record in the areas of mortgage-backed securities and emerging markets is reflected in these awards.”

This is because Tad and his team had almost nothing to do with delivering these “strong returns” to the “long-term investors” in TCW Total Return Bond.

Before we dig in here, please be aware that I am not making any recommendations for anyone with this post – I’m simply pointing out another dimension of performance research that often gets overlooked by investors who are “chasing the hot dot.” So please don’t act on anything I say here without doing your own homework.

Anyway, the quote above from Mr. Rivelle is about the performance that resulted in the fund company accepting a Lipper Award on March 9th for five- and ten-year performance. The problem with this – and the thing that investors need to know – is that these award-winning results were actually generated by Jeffrey Gundlach and his team, about 30 of whom departed TCW in December of 2009. Anyone who had been given trading authority by Gundlach or had worked closely with him, learning his process, has already followed him to his new shop, DoubleLine.

Think that Andrew Luck or RG III or whomever is the next QB for the Colts would be so brash as to hype the success of the Colts while Peyton Manning led the team? Clearly not. In the same fashion, make sure you know who is ‘calling the shots’ before you put your money to work in any fund.

Larry Doyle

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Disclosure: I do have an investment in a retirement account in Doubleline Funds.

The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.

  • Peter S.

    “Independent” fund boards matter too!

  • John Reim

    Say on Pay proxy statement disclosure should be extended to mutual funds…explaining the performance targets of fund managers…. and whether they met their targets.

  • fred


    All good points you bring up, but since you brought it up,

    1) do you know of any independant portfolio manager review sources that track the lead portfolio manager’s return and risk mgt performance w/o reguard to where he/she managed money?

    Most mutual funds are moving away from the ‘star manager platform’ to avoid situations such as TCW with Gundlach.

    2) what if there is no lead portfolio manager but rather ‘mgt by committee’ or an ‘outside mgt team’, should your due diligence change in any way?

    • LD


      I believe the best resource for info and analysis on mutual funds is Morningstar.

      There is a free membership but then also a premium product offered there.

      I do not think the due diligence should necessarily change. I think the key is for people to assess and determine how consistent strategies and returns might be.

  • James

    Tad Rivelle is a well known fixed income bond investor. He has a track record and the team at TCW now, although not Gundlach’s, are bright individuals. I respect many of your writings, but this is just cherry picking an article by an author that probably doesn’t even know a thing about the MetWest team.

    Tell me Larry, what is he suppose to say if he is presented an award? “Sorry, I cannot accept this award on behalf of TCW because I did not manage this fund, however, my fund at Metwest outperformed 90%+ of other bond fund managers as well. Thanks Lipper!, but do your homework before you present an award to my company for performance!” ? Please.

    • Honesty

      What do you expect him to say? I expected him to have some morals and been honest. I think he should have been honest and said these “Lipper awards are computer generated. I have only been managing the Fund since 2009 and can’t take credit for its long term track record.” That should have been his response. Who cares if the MetWest Fund beat 90% of its competitors? If that was so great, why didn’t that Fund win the award? Yet he has no probem taking credit for someone else’s work. It’s disgusting.

  • LD


    Two points. The primary one being —and I will repeat—

    In my opinion, the single most important factor to assess prior to investing in a fund is to know the manager. Who is calling the shots? What is this individual’s track record? How long has the manager been running the fund? How strong is his team? I strongly believe that our financial regulators should mandate that these disclosures are highlighted in the marketing materials of all investment funds.

    The second point is a question.

    What do you think about the practice known as “truth in advertising”?

    Let’s forget the nonsense about awards and let’s focus on what is really going on in the management of funds so investors are both educated and protected. I know the people from MetWest are very qualified so this serves as an example but I am sure it is not the first nor the last time this issue has arisen within the industry.

    Investors should “navigate accordingly”.

  • Honesty

    Even if you regarded the MetWest team as qualified. That is not what this article is about. It’s about Tad Rivelle shamelessly taking credit for an extremely impressive track record that he did not produce! It’s outright misleading investors. To me it says a lot about this man’s character. Not the sort I would want managing money for me. And good for Larry for pointing it out! He should be ashamed!

  • DG

    Larry, you and Reformed Broker are doing a great job keeping these highly paid fund managers honest! Also let me point out that since Jeff Gundlach started his new DoubleLine Total Return Bond Fund DBLTX so far he has smoked the TCW Total Return Bond Fund TGLMX since Tad Rivelle began trying to fill Mr. Gundlach’s shoes. In 2011 DBLTX returned 9.5%. TGLMX 4.1%. And what about Mr. Rivelle’s performance running his own Metropolitan West Total Return Bond Fund. MWTRX 5.5%. Less even than all three funds’ benchmark the Barclays Capital Aggregate which returned 7.8%. Mr. Rivelle is a good manager, and maybe he will play catch up to Mr. Gundlach given time. But so far the score board so far shows Mr. Rivelle is not playing in Mr. Gundlach’s league.

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