Being the managers rather of other people’s money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which (they) watch over their own.
– Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776
When I analyze mutual funds (or, for that matter, public companies, hedge funds or investment advisers and their firms), one of my first questions is: Are the managers “eating their own cooking?”
In other words, are the managers putting their money where their mouths are by investing in the strategies they are responsible for? Are we in the boat together, or must I trust they are looking out for my best interests?
A few weeks ago, I asked that question of Vanguard’s board of directors—which consists of 12 individuals, including Vanguard Chairman and CEO Tim Buckley. Now I’m asking it of the portfolio managers tasked with making the day-to-day investment decisions.
Whether a manager or board member is invested alongside shareholders seems like a basic question, so you’re forgiven if you thought finding an answer would be easy. It is not.
As I said in the article on board ownership, Vanguard is only required to disclose manager and board fund ownership once a year—which they do. Unfortunately, the updates come in bits and pieces months apart as prospectuses are renewed across a mix of fiscal year-ends.
And the disclosures, which are buried in the legalese, are pretty vague. Board member ownership is reported in five categories: $0, $1–$10,000, $10,001–$50,000, $50,001–$100,000 and over $100,000. Manager ownership is little better, with additional categories of $100,001–$500,000, $500,001–$1,000,000 and over $1 million.
Let me be clear. I find this level of disclosure to be terribly lacking. Leaders of public companies (think the CEO or CFO) are required to disclose how many shares of the company’s stock they own and when they are buying or selling shares. Why shouldn’t fund managers be held to the same standard?
Vanguard should take a leadership role in this. At the very least, Vanguard could make the information they are required to disclose more accessible.
But if Vanguard won’t do even that much, I will.
I have collected the data so you’ll know whether the paid stewards and managers of your investment dollars have a vested stake in a given fund’s success. You can find a detailed table showing manager ownership levels fund by fund here. (And the data on board ownership is here.)
Portfolio managers from PRIMECAP Management and Wellington Management stand out for investing heavily in their portfolios. Managers from most other sub-advisors could stand to do a lot better.