NEW YORK -- For investors in Vanguard Group's Vanguard/Windsor Fund, last week's news that longtime manager John Neff plans to retire comes as a shock. Regretting Mr. Neff's exit is understandable, fund managers and analysts say, but it's not a reason to bail out of the fund.
"Fund holders would do well to look before they leap," said Scott Schoelzel, who co-manages $9 billion at Janus Funds in Denver. "Consider the experience and background of the new fund manager. That person can often contribute more than the public might expect."
"The correct time to bail out of any fund occurs when your needs change," said A. Michael Lipper, president of Lipper Analytical Services Inc. If an investor suddenly needs money, for example, liquidating holdings in a fund would make sense.
From the new manager's point of view, continuing a fund manager's successful strategy is probably the best way to build confidence among investors.
For his part, Mr. Neff, 63, is satisfied that his successor, Charles Freeman, 51, will follow his tradition of finding bargains in the stock market -- the strategy called "value investing."
Mr. Neff himself shows a great deal of confidence in Mr. Freeman. He has $6 million of his money invested, he said, mostly in Windsor and "I'm going to keep the money there."
Mr. Neff managed the fund for 30 years, during which Windsor has produced annual gains of 13.4 percent, according to Lipper Analytical. By comparison, the Standard & Poor's 500 Index rose 9.9 percent a year during that period.
This year, Windsor is down 1.06 percent, while the S&P; 500 is down 3.34 percent. Windsor has customers' assets of $10.7 billion, making it the nation's sixth-largest mutual fund.
John Bogle, chairman of Vanguard, said Mr. Neff's record is "impressive, and the shareholders of the fund, including myself, are in his debt."
Mr. Lipper said fund managers' changes don't show up quickly after a transfer of control.
"It could take as long as a year for a manager to change a portfolio," Mr. Lipper said. "It's very important for investors to understand whether there will be fundamental changes in policy.
Fund holders can help themselves by doing their own research when a new manager arrives. "Investors can contact the mutual fund company and look at a fund manager's record and strategy," Mr. Lipper said.
The most widely noted departure of a fund manager probably was Peter Lynch's retirement in March 1990 from control of the Magellan Fund, the biggest fund of all. It now has $37 billion in customers' assets under management. Mr. Lynch recalled last week that few customers pulled out of the fund when he left.
Mr. Lipper said that kind of favorable reaction occurred because Fidelity showed "support for the new manager," Morris Smith. Today, Jeffrey Vinik steers Magellan.
"Fidelity has tremendous resources for Magellan," Mr. Lipper said. "They have their own trading group so their orders get special attention."
Vanguard has similar strengths, Mr. Lynch pointed out.
"These aren't people who are working out of their cellar," he said. "Shareholders have faith in Vanguard. When I left, shareholders had faith in Fidelity."
Mr. Schoelzel might add that investors should also show patience with the new manager. Mr. Schoelzel's old fund flourished during 1993, a boom period for investments in general. His successor has had a tough time in a choppy market.
When Mr. Schoelzel resigned, almost one year ago, as the manager of the $430 million Founders Growth Fund, some of his customers wasted little time calling him to mourn his departure. He tried to reassure them that Edward Keely, who had been an analyst with him at Founders, would do a good job as his replacement.
"When I left Founders, I told everyone who would listen to me that Ed Keely would do a fantastic job," Mr. Schoelzel said.
That's where patience plays a big part. Still, in a very demanding stock market this year, Mr. Keely has not yet matched Mr. Schoelzel's record. According to Lipper Analytical Services Inc., Mr. Keely's fund has lost 4.04 percent so far this year, slightly below the average for the growth-fund group of a 3.03 percent loss. It ranked 296th out of 474 growth funds.
Under Mr. Schoelzel, for all of 1993, the same fund had a return of 25.53 percent, ranking 17th out of 365 growth funds. The average fund in that investment category showed a return of 10.62 percent for the entire 1993.
Like Mr. Neff, Mr. Schoelzel gave his replacement the ultimate compliment.
"I left my money in that fund," he said.