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When a manager is fired, an investor will worry - DOLLARS & SENSE


ONE OF THE managers of my mutual fund got canned recently. I hadn't assumed anything was wrong with the fund. Now I have no choice but to wonder.

It's a situation a lot of investors could find themselves in as layoffs and work force reductions pick up in the fund business.

For investors, cutbacks should create mild worry. The deeper the cuts the greater the cause for concern.

Putnam Voyager has been in my account for about five years. It is not my best fund, just the best option in my 401(k) plan to carry out its particular mission in my investment strategy.

In that time, Voyager has had an annualized average return of more than 12 percent, a peak gain of 56 percent in 1999, and a 17 percent loss last year. That downturn, coupled with the loss of another 13.5 percent thus far in 2001, hasn't made me happy, but was within my downside expectations for the fund.

Yet, Putnam's recent layoff included Chuck Swanberg, one of six managers on the Voyager team. (Putnam has not given the media the names of the five managers who got the ax during its layoffs, but inquiring customers can learn that the moves impact the management teams of Voyager, Voyager II, New Century Growth, Health Sciences, Convertible Income-Growth, Emerging Markets, and Vista funds.)

Typically, fund managers get whacked under one circumstance - consistently lousy performance. Managers may change firms, open hedge funds, retire, break out on their own and more, but few managers with respectable track records get the ax.

Logically, that raises the question that if Putnam thinks something is wrong and is whacking fund managers, shouldn't I - or any shareholder - think the fund is in trouble?

I've posed that question to Putnam officials, but about all they will say for the record is that "nothing is changing," at least with respect to the direction of the funds and how they will be run. The move is described simply as an across-the-board layoff, with performance not being a factor.

But in the fund business, everything is performance-related, to one extent or another.

While many Putnam funds are suffering today, it's important not to read too much into the situation. Given the firm's team approach, cutting a low-level co-manager is not much different than a fund with a star manager losing a top assistant.

The difference between the role of top analyst and low-level manager is mighty thin, like the difference between a bench player on a big-league baseball team and the top starters on a minor-league club.

The skills are pretty similar, but the scrubs in the big leagues make headlines and have their own baseball cards, while the minor leaguers toil in obscurity.

Ultimately, if your fund company announces any sort of layoff, watch to see what might be changing. Fund companies have become more efficient as they have persuaded customers to use the Internet more; they may be able to get away with fewer service people without you noticing.

But any manager change or cut in research staff (along with any noticeable drop in the quality of customer service) warrants a closer look. It's not enough to make you dump a fund immediately, but it should put a fund on your "watch list."

"There are many more serious changes in the fund world where people say, 'I'll give it some time to shake out,'" says Roy Weitz, who runs the Web site, which counsels investors on when to dump poor-performing funds.

"A change in the management team is something to keep an eye on," Weitz says.

"You wouldn't want to overreact, but you wouldn't want to ignore it either. Obviously, everything with your fund company is not totally wonderful if they are letting managers and key researchers go."

Chuck Jaffe is mutual funds columnist at the Boston Globe. He can be reached by e-mail at or at the Boston Globe, Box 2378, Boston, Mass. 02107-2378.

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