Different Manager Structures

Before discussing further why fund managers are important, let's step back and examine the three ways in which funds can be managed.

Single-manager

First, there's the single-manager approach. In this setup, one person takes primary responsibility for making the fund's investment decisions. The manager doesn't do all the research, trading, and decision making without help from others, though. For example, one can be a single manager, but the fund's analysts will feed him or her plenty of stock ideas. The single manager is sole decision maker, not the sole idea generator.

Management team

Second, there's the management team, first popularized by families such as American Century, Dodge & Cox, and Putnam. Here, two or more people work together to choose stocks. The level of one team member's involvement or responsibilities can be tough to gauge, though. Sometimes there's a lead manager who is the final arbiter, while other times it is more of a democracy.

Multiple-manager

Third, and most rare, there is the multiple-manager system. The fund's assets are divided among a number of managers who work independently of each other. Multiple managers are more common with funds managed by firms other than the fund company itself.

Why managers matter

It is always important to know who a fund's manager is, whether the fund is run by one person or a whole team. Equally important is how long the person or team has been running the fund. Make sure that the manager who built the majority of the fund's record is still the one in charge. Otherwise, you may be in for a surprise.

Of course, not every manager change is a cause for potential concern.