Wholesalers of mutual funds who represent "drifting" PMs may have more explaining to do. The editors at InvestmentNews
are warning advisors that they must be vigilant in avoiding style drift.
The editors cite the example of Facebook, whose stock found its way into mutual funds where it shouldn't fit, style-wise. One dividend paying mutual fund holds the stock despite the fact that Facebook pays no dividend and likely won't anytime soon. In short, advisors need to be careful where they invest their clients' nest eggs, according to the article.
The editorial notes further that "too much style drift is a strong indication that a fund's manager, or managers, have veered away from a fund's stated investment objective. Style drift also may point to a change in leadership of a fund's management team or a lack of conviction by the manager in a fund's investment philosophy."
And style drift is all too common, the editors note: About 40 percent of actively managed funds were classified wrongly or had moved away from their style, according to a recent study by the Association for Investment Management and Research.
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