When a manager of an “actively managed” fund (not an index fund) changes, investors often sell their shares, figuring that what they liked about the fund will now fade. That is often—but not always—the wise move. Example: After T. Rowe Price announced recently that star manager Henry Ellenbogen of the New Horizons Fund is leaving, along with three members of his team, Morningstar Inc. downgraded its rating of the fund two notches from “gold” to “bronze,” saying that Ellenbogen’s replacement is untested on such a massive fund.

But in many cases, if you like the fund and it is performing well versus its peers, you may be better off staying.

How can you tell what is the right ­decision?

Consider getting out of the fund if … 

• The new manager comes from outside the mutual fund company and/or does not have a strong track record of investing in a similar way. He/she may not be able to replicate the same successful strategy.

• The new manager plans to alter the fund’s strategy. The new strategy might not fit your particular investment goals and/or risk tolerance. A big change in strategy often happens when a fund family uses subadvisers—outside ­asset-management companies—to run a fund and decides to make a switch. 

• You have been unhappy with the performance of the fund versus its peers. Rather than hope that a new manager can improve returns, it’s a good time to look for a similar fund that has a better record. 

Consider staying if you were happy with the fund and…

• The fund will be managed by one or more comanagers who have worked with the departing manager for years. In my experience, longtime comanagers have an excellent chance of replicating a fund’s strategy and success. Less appealing: When a research analyst (a more junior position) is promoted to replace a departing manager. In this case, give the fund a chance, but watch it closely to evaluate the rookie manager. A manager’s job requires broader skills than just analyzing companies and picking great stocks. It requires, for instance, the ability to determine how much to allocate to certain sectors and/or companies. 

• You own the fund in a taxable account, and if you sell it now, you will face a big tax bite from years of capital gains. Taxes alone shouldn’t dictate investment decisions, and of course, you eventually will have to pay the taxes when you sell. But the potential tax bite might make it wise to give the new manager more time.

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