When to Sell: Your Fund Changes Its Strategy or Underperforms for a Long Period
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When to Sell: Your Fund Changes Its Strategy or Underperforms for a Long Period
Presumably, you buy a small-value fund because you want exposure to small-value stocks. If the manager suddenly starts buying large-growth stocks, you may have a problem. After all, you may already have a large-growth fund in your portfolio.
Things To Know
- Be sure you’re comparing your underperformer to an appropriate benchmark.
Caveat
Be careful in how you define a change in style, though. Sometimes a manager’s stocks and habits will change, even though his underlying strategy hasn’t. Consider hypothetical Fund XYZ: the fund didn’t migrate from the small-growth to the mid-cap growth category because the manager began buying larger stocks. He still buys small-cap issues; he just holds onto them as they move into mid-cap or large-cap range.
When it lags year after year
While one year of underperformance may be nothing to worry about, two or three ugly years can get frustrating. The urge to sell intensifies.
Before pulling the trigger, be sure you’re comparing your underperformer to an appropriate benchmark, such as its Morningstar Category peers or a suitable index. Before you pass judgment, make sure the manager or strategy hasn’t changed.
