What are the chances that your mutual-fund manager is investing alongside you?
Well, flip a coin.
According to investment research firm Morningstar, 49% of mutual funds don’t have a dime from the managers running them.
“[W]e’re more interested in what fund managers do than what they say,” Morningstar said. “We recently analyzed which fund managers have invested their own money in their own funds. Which ones were confident enough in their investment decisions to put their own money on the line?”
When evaluating mutual funds, Morningstar looks at performance, costs, investment approach and other factors.
“But we also look at less-traditional, more-subjective measures such as how much a fund manager invests in his own fund,” Morningstar said. “After all, like a chef who won’t eat his own cooking, a fund manager who personally invests (or doesn’t) in the fund he manages tells us something important about confidence and commitment.”
At Covestor’s investment marketplace, portfolio managers do eat their own cooking. Managers on the Covestor platform have their own money in the portfolios they run, and their trades are replicated in client accounts.
We think this setup helps align the interests of managers and investors, because managers have their own skin in the game.
DISCLAIMER: The information in this material is not intended to be personalized financial advice and should not be solely relied on for making financial decisions. All investments involve risk, the amount of which may vary significantly. Past performance is no guarantee of future results.