You’ve just found out that the manager of your favorite mutual fund is decamping. What to do? Stay or go? Investors in the United States, where top-performing managers often attain cult status, havebeen facing that dilemma more often of late as several of the most successful managers have announced their departures. The reasons range from a desire for more autonomy in running their portfolios,especially given the recent popularity and higher fees of hedge funds, to retirement after distinguished careers. The decision is less difficult if the manager is moving to a solid fund company withgood research or if, as often happens, the fund’s analyst team makes the move as well. Indeed, many investors simply follow the manager because they anticipate that the outperformance will continueat the new destination. But increasingly, these investment stars are moving out of reach. Many of them, like David Glancy, whose Fidelity Capital & Income Fund rocketed more than 47 percent overthe last 12 months, are starting hedge funds, where six-figure entry fees are well beyond the pockets of most investors. Others, like Ralph Wanger of the Liberty Acorn Fund, a small-cap offering, areretiring. Sandy Rufenacht, who ran the high-yield bond fund at Janus Capital Group, has formed his own company, but funds for individual investors are not on the agenda now. For investors ponderingwhether to stay or go, here are some points the experts say should be considered: Look at the firm, not just the fund. While your deliberations naturally focus on the track record and the strategy ofthe new manager, Russel Kinnel, director of fund analysis at Morningstar, the Chicago fund data group, stressed the importance of the firm as a whole. Look at the company behind the fund, and itsdepth of talent, he said. It’s possible you had the one good fund from a crummy shop, so I wouldn’t have much faith in their replacement. But if they’re a deep firm, it’s not as big a deal. Asexamples of the latter, he cited Vanguard and Fidelity, specifically, their bond funds. They’re pretty team-managed, and they still have low costs going for them, he said. Watch closely for changesin investing style. When a star manager leaves, fund companies rush to reassure shareholders, emphasizing confidence in the new team and continuity in strategy. But investors who choose to stay needto be vigilant, Kinnel said. A fund company may say there isn’t a change, he said, but a prospectus can have a lot of wiggle room.

Indeed, many financial advisers automatically advise selling out of a fund when the manager leaves. The manager is by far the most important person, said Lewis Altfest, a financial adviser in New York. He built the track record, and he pulled the trigger. Now he’s gone, so you can assume that returns will be average, and I’m not interested in average returns. An exception, he said, might be an offering from Capital Research, which runs the American Funds family and is known for its research and team management. Another case in which it might be worth sticking around is a fund with a unique investment strategy. Eric Jacobson, head of fixed income research at Morningstar, suggested that shareholders might stay with Fidelity Capital & Income, Glancy’s former portfolio, which was aggressive even by junk-bond measures. He pointed out that the new manager ran another Fidelity high-yield bond fund and emphasized the importance of the fund’s analyst team. The great ideas have come from the analyst pool, he said. Consider alternate routes to the same destination. If neither following the old nor sticking with the new fund manager is an option, another approach is to find an approximate replacement at a third fund company. When Michael Price, a vulture investor known for taking stakes in bankrupt companies and complex turnaround situations, left Mutual Shares to become a private investor, Altfest took his clients out of the fund and replaced it with the Longleaf Partners Fund, which sometimes takes large stakes in troubled companies and follows a strict value discipline, paying no more than 60 percent of the business value of a company. The fund has been a top performer, even in the rocky markets of the past few years. Think of this as an opportunity. A manager’s departure can provide the impetus to make an overdue decision to sell out. A manager change at a fund you bought five years ago that has proved to be a disappointment can be a good time to re-evaluate, Kinnel said. But don’t assume that a manager change represents an improvement unless the management company has a good track record. [Not to be reproduced without the permission of the author.]