Multimanager approach makes inroads at Fidelity, Janus

Although Fidelity Investments and Janus Capital Group Inc. recently designated multiple managers for specific portfolios, neither firm is abandoning their individual-portfolio-manager system. The majority of Boston-based Fidelity's 425 mutual funds are run by a single portfolio manager, and "we expect that to continue," according to company spokesman Vincent Loporchio. "We continue to believe in the merits of individuals' choosing stocks." The eight managers who will lead Fidelity's VIP Contrafund Portfolio will specialize in one or two sectors. Each manager has responsibility and accountability for their sector sleeve so that the approach isn't management by committee, Mr. Loporchio said. "We expect that this group will manage additional assets in the future," he said. The team succeeds William Danoff, who will continue to manage two other funds. "The appointment of the multimanager team accomplishes two key objectives," Mr. Loporchio said. "First, we are providing the shareholders with access to the multimanager group's specific resources and expertise. And it allows William Danoff to focus his energies on the Contrafund and the Fidelity Advisor New Insights Fund, which reopened Nov. 1." The VIP portfolios are distributed solely as investment options in variable-insurance products through insurance companies. "The multimanager team was not designed with any distribution channel in mind, but it was well suited to the institutional client base represented in the VIP portfolios," Mr. Loporchio said. "We thought as an initial fund, it would be best to start with an institutional client base." Fidelity already has teams in place for some portfolios within its institutional money management arm, Pyramis Global Advisors Trust Co. of Boston, as well as other funds, such as the Fidelity Worldwide Fund and the Asset Manager product line, Mr. Loporchio said. Many companies have adopted multimanager approaches, said Philadelphia-based mutual fund consultant Burt Greenwald. "I think you are seeing a little bit more of it, and a lot more publicly," he said. "People now feel it's a positive thing rather than having a single star out there." "The departure of key people raises issues in the minds of investors," Mr. Greenwald said. "If you have a team, you don't have the same impact as you do when a single star leaves."
Institutional investors and consultants tend to favor a multiple-manager approach, said Karen Dolan, mutual fund analyst at Chicago-based research firm Morningstar Inc. "They don't like taking the star manager risk," she said, adding that some investors leave when a manager leaves. While analysts note that multiple management can help insulate a company against the risk of losing managers, that isn't the catalyst for team management at Denver-based Janus Capital Group, according to spokesman James Aber. The multiple-manager concept was instituted at Janus prior to the recent departures of some high-profile portfolio managers, he said, and not all the managers leaving are being replaced by more than one manager. Jonathan Coleman and Dan Riff will replace David Corkins at the helm of the Janus Fund. But when Scott Schoelzel leaves at yearend, Ron Sachs will be the sole portfolio manager for the Janus Twenty and Janus Adviser Forty funds, Mr. Aber said. The majority of the company's assets are managed by single portfolio managers. "We're not moving away from the individually managed portfolio," Mr. Aber said. "We are moving toward a hybrid approach — some individuals and some team managers," he said. "The decisions to name a single manager or a team are based on the product, client preference and the specific skills of the individuals." Janus has launched several new funds in recent years that have multiple managers. The approach varies. With some, the team uses the sleeve approach, where each individual manages a portion of the portfolio. With others, the team makes the decision together, Mr. Aber said. American Funds, which is advised by Capital Research and Management Co. of Los Angeles, may be the best-known company in terms of using the team management approach. The concept is part of the corporate culture at American Funds, Ms. Dolan said. Individual managers and analysts share ideas and benefit from one another's expertise, but they don't need a group approval to make decisions about their slice of the portfolio, according to American Funds spokesman Chuck Freadhoff. While there may be more multimanager funds on the horizon, the system of single portfolio managers is entrenched industrywide. Some observers think that the industry could see some new star managers emerge. "In five or six years, you may see a new star portfolio manager has emerged. They'll be highlighted, and they'll get the publicity; it's all cycles," Mr. Greenwald said. "Absolutely, it could come back to the extent that these fund companies have really good talent," Ms. Dolan said. "We could see a resurgence of that," she said. "Certainly, people who are very good stock pickers can add value over time." Star managers may get more visibility, but we won't see a return to the 1980s and 1990s, said Geoff Bobroff, a Greenwich, R.I.-based mutual fund consultant. "I think if we get back to the growth equity era of the 1990s, the re-emergence of stars may well be one of the byproducts of that," he said. "It's not as likely that it will return." One adviser who prefers individual managers to multiple managers is F. Dennis DeStefano, president of DeStefano Wealth Management of Kihei, Hawaii. "If you have three, four or five managers, and one manager leaves, I have no way of making any judgment about the impact that is going to have on the fund," he said. "If you have one lead manager, and they leave, then I walk, unless I have some track record with the new manager." Regardless of how many managers are leading a fund, today's focus is on solutions. "Funds for the most part are being used as mixing ingredients in asset allocation and solution-based selling," Mr. Bobroff said. "You have to pass the muster of the quantitative today," he said. "That's what's important — not so much who is managing the fund." Sue Asci can be reached at sasci@crain.com.