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The Three P’s To Picking A Fund Manager

For those that have sat in a conference room building out a new strategy for your company, you know that often the team leader will discuss the three P’s: Purpose, Process, and Payoff.

With well over 10,000 mutual funds in the marketplace and now a slew of actively managed exchange traded funds, picking a mutual fund manager may end up being one of the more challenging tasks for an investor in their 401(k) plan or those with a large portfolio. Is it best to pick a fund manager that is a lone ranger? Is it best to pick a fund manager that selects funds through a team approach? I have often asked investors, which is most important to win the horse race? The horse or the jockey? To be successful as an investor, I would suggest you filter them out by using the purpose, process, and payoff system.

  1. Purpose: Do you know exactly what outcome you are looking for with your investment dollars? Are you wanting to protect your principal? Are you looking for aggressive growth? Are you looking to buy value stocks or growth stocks? Are you specifically looking to invest in international stocks or emerging markets? These are important questions to be asking yourself as an investor because you could find a great fund manager, but they may not manage money in a fashion that is consistent with your investment goals and objectives. So, you need to be clear about your purpose.
  2. Process: Does the manager have a ‘repeatable’ process that they use to select the investments within the portfolio? If you are choosing a team, how much of a decision does the portfolio manager make versus the team? What is their screening process? Without a really effective disciplined strategy and process to selecting investment, it is unlikely you will find a top quality manager.
  3. Payoff: At the end of the day, you want a fund manager who has a successful track record. The payoff of paying a professional fund manager is to find a person who can consistently beat their competitive benchmark or index or be decisive about measuring your manager with what absolute return you would be satisfied with every year. Otherwise, wouldn’t it make sense to just index? If you invest money without having those expectations, you might just wind up with a purpose and a process but not the payoff you expected.

Consider these three important P’s before you pick a fund manager.

Written by: Ted Jenkin
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About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin @ Your Smart Money Moves

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My friends and family all think I’m a workaholic, but I say I’m just a guy that loves to help people do better in life.

My mother is still the only one that calls me by my real name Theodore Michael, my wife calls me Teddy, but for the rest of you it is just plain old Ted.

Ever since I was a little kid, I always loved money and being an entrepreneur. In fact, I still have cassette tapes of me talking to my grandmother at the age of five and my mother tells me all the time how much I played with money as a kid...

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Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor regarding your individual situation. 

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2 Comments

  • Avatar
    June 24, 2015

    Fund manager is the person who takes care of the liquidity of the firm and is the in-charge of the cash position of the company. hence the decision of picking a fund manager is crucial. As mentioned in the post, there should be a purpose and a valid process for the same. Make sure they maintain their track record. He can also provide financial planning for the company.

  • Ted Jenkin @ Your Smart Money Moves
    June 25, 2015

    Thanks for the comment

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