Why Don't More Fund Managers Buy Their Own Funds?

Insider ownership is a mark of confidence in stocks, but many mutual fund managers don't invest in their own funds.

Dan Caplinger
Dan Caplinger
Jul 29, 2014 at 9:58AM
Investment Planning

Mutual fund managers make a huge amount of money for what they do. Yet a large number of those managers don't have a single penny invested in the funds they manage. Can you truly have confidence in managers who don't have a stake in their own game?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at Morningstar research cited in Barron's that discusses how few mutual fund managers have big stakes in their funds. According to the research, more than a third of all stock funds have managers who have no holdings at all, while only a bit more than 10% have more than $1 million invested in their own portfolios. Dan notes that Morningstar's findings showed that substantial insider ownership correlates with better performance. Dan concludes by saying it makes sense when evaluating a fund to look at whether the fund manager invests in the fund in order to judge whether his or her interests align with yours.