(PUB) Morningstar FundInvestor

April 2 014

Morningstar FundInvestor

11

Green Managers at the Helm Red Flags | Greg Carlson

firms than Parker did. It remains to be seen whether Driscoll can succeed here in his first portfolio- management assignment while striking out in a diff- erent direction from Parker. Fidelity International Small Cap FISMX Sam Chamovitz became the ninth manager of this 11 -year-old fund at the end of February 2014 , replacing a three-person management team. Cham- ovitz, a Fidelity analyst since 2007 , managed an internal international small-cap strategy for 12 months before taking over here but hasn’t run a fund before. His lack of a track record is particularly unsettling given the fund’s focus on a wide swath of volatile stocks buffeted by their exposure to local economies across the globe. He’s also making signifi- cant changes, slashing the number of holdings to roughly 100 from 350 —and the fund may own a bigger stake in emerging-markets stocks now since its new benchmark, the MSCI ACWI ex- USA Small Cap Index, has substantial exposure to devel- oping markets. Investing here right now would be a sizable leap of faith. RS Value RSVAX Most of this fund’s five managers have run money for only short periods. When longtime manager Andy Pilara stepped off the fund in May 2013 to become a senior advisor for the firm, Joseph Manelli and Byron Penstock joined three others as comanagers here. The other three were replaced in January 2014 by Paul Hamilon, Robert Harris, and Daniel Lang. Of this current group of five, Manelli and Penstock had man- aged RS funds for a total of two years and one year, respectively, when they took over the fund. This is the first portfolio-management assignment for the other three. They run the fund in a collaborative fashion, but their collective track record is far too short to inspire any confidence. œ Contact Greg Carlson at greg.carlson@morningstar.com

New skippers who lack previous portfolio-manage- ment experience don’t necessarily flop their first time around. But the lack of a prior track record often makes for murky prospects. Let’s take a closer look at several current examples. T. Rowe Price Growth Stock PRGFX Joe Fath took the helm of this large-growth fund in mid-January 2014 . Unlike most new T. Rowe man- agers, Fath didn’t have the luxury of a lengthy transi- tion period: Former skipper Rob Bartolo resigned unexpectedly. And although Fath had served as an associate portfolio manager at T. Rowe Price Institutional Large Cap Growth TRLGX since 2008 , and thus is familiar with many of this fund’s hold- ings because of portfolio overlap, he hasn’t called the shots at a fund before. (Associate managers at T. Rowe don’t make buy/sell decisions and thus aren’t listed in a fund’s prospectus.) Fath is also taking on a big job here: He runs a total of $ 58 billion in this strategy, a pool that is 5 times larger than Large Cap Growth’s asset base. That asset load would be challenging for even a veteran manager, much less one who hasn’t run a fund before. T. Rowe Price New Era PRNEX In September 2013 , Shawn Driscoll replaced Tim Parker, who had managed the fund since June 2010 . Driscoll hasn’t run a fund before. He had worked with Parker since April 2013 , though, to ensure a smooth transition here. Also, Parker remains at the firm, so Driscoll can use his knowledge. That said, this rookie manager is putting his own stamp on the fund, which is primarily a natural-resources port- folio but has the latitude to define that term broadly. Indeed, much like Parker’s predecessor, longtime manager Charles Ober, Driscoll has added engineer- ing and pipeline construction firms to the fund. He’s also built bigger stakes in large integrated oil

What is Red Flags? Red Flags is designed to alert you to funds’ hidden risks. Such risks can take many forms, including asset bloat, the depar- ture of a solid manager, or a focus on an overhyped asset class. Not every fund featured in Red Flags is a sell, and in fact, some are good long-term hold- ings. But investors should be prepared for a potentially bum- pier ride in the near future.