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Who's Managing Your Money?
When should you take your money out of a fund?
Second in a two-part series
Last week, we talked about some of the factors you should keep in mind when evaluating whether to invest your money in a new fund. This week, we look at the other side of the coin: When should you take your money out of a fund? It's not always an easy decision, especially when the fund has served you well. Here Randy Burge, a Russell portfolio manager, provides his perspective.
 Selling your mutual fund for underperforming has some pitfalls. It's important to distinguish, of course, between absolute and relative performance. If you "fire" a fund manager whose style is out of favour but who has managed to outperform a relevant benchmark, you're basically buying high and selling low. A fund that stays true to its style and doesn't retreat to cash reflects, to some extent, the market environment. A portfolio with seemingly dismal absolute returns may have achieved really admirable relative performance. When market sentiment again favours the manager's style, the fund's absolute performance once again may be equally as impressive. That's why, in evaluating a mutual fund manager's performance, we at Russell consider two main points: the fund's investment style, such as small-cap value or large-cap growth, and the market environment in which the fund's performance was earned.
Stay Focused on Your Goals
At the same time, there may be a good reason to part ways with a fund-even though it has done what you've "asked" it to do. Any time there is a strong, narrow market rally such as the one we've had over the past few years, you run the risk that your overall portfolio has gotten out of alignment with your long-term objectives. You want to do not only what's best now, but what will be best for your future.
Of course, in these cases, it pays to keep taxes in mind. Your financial advisor can tell you more.
Don't Be Afraid to Change With the Times
Another legitimate reason for getting rid of a fund is believing that another fund can do a better job of taking advantage of changing market conditions. You might, for example, want to replace a fund that is aimed at choosing industrial stocks with one that is particularly adept at selecting technology stocks.
For further information about these contents, please contact Russell Investments Canada Limited.
Copyright© Russell Investments Canada Limited 2008. All rights reserved. Important Legal Information. Date of first use: August 2000.
This is a publication of Russell Investments Canada Limited. It should not be construed as investment, legal, or tax advice. The contents are intended for general information purposes only, and you are urged to consult your own investment, legal, or tax advisor concerning your own situation and any specific investment questions you may have.
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PART I in Series |
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