Changing fund managers: I noticed that the Select fund managers change frequently and most are gone before two years. Is this a problem? Does it invalidate research based on historical performance? The longest tenure of any current Select fund manager is two years, and for most it is less than a year. The reason for the frequent changes is that Fidelity uses the Select funds as the training grounds for the managers of its larger funds. The Wall Street Journal of November 17, 1997 had an article about these fund managers saying the Select funds are where the "rising stars make the cut." The usual career path starts in a research analyst position and moves up to a Select fund. To broaden their horizons, managers will often change Select funds or take on additional ones before moving up to a larger Fidelity fund.
Rather than being a problem, I believe this function of the Select funds is an advantage. The managers have strong incentives to do well so they can move up to larger funds, either at Fidelity or with another mutual fund organization. I would expect that they would do all they can to produce high returns within the confines of their specific sectors. The article points out that bonuses for Select fund managers are based on how well they work with the managers of the larger, diversified Fidelity funds. In effect, they are primarily analysts who use the funds they manage "as a showcase for their best research ideas."
I do not think the frequent managerial changes affect the validity of my research. This policy is not new, so my historical data, which go back to 1986, reflect the past frequent changes. Moreover, all Fidelity managers rely heavily on the work of the research analysts. The new manager of a Select fund will base his or her decisions on essentially the same information and sources as those used by the prior manager. Many select funds, such as Electronics and Home Finance, have outstanding records for most periods over the past ten years. Of course, the particular sector will have an enormous effect on the performance of the fund. For example, no matter how good the manager, it would have been virtually impossible for a cyclical sector such as Chemicals to perform as well as the high technology funds have over the past five and ten years.
Keep in mind, that my system buys the funds that have been performing the best recently. If a fund has a poor manager who does not produce good returns, then we are not likely to buy it. Also, if the performance of a fund we own lags behind, because of the manager or any other reason, then the system is going to switch to another fund in the near future.