What would cause Litman Gregory to replace a manager?

When we hire stock pickers as sub-advisors for a Litman Gregory Masters Funds, it is our objective to apply an extremely high standard and to be exceptionally thorough in our research of the stock-picking team, their process, their execution, the culture and business objectives of the organization and their enthusiasm for being part of Litman Gregory Masters Funds. In meeting this objective, we hope that each sub-advisor we hire will be with the fund for the duration of his or her career. The conviction we gain from this process also makes it easier for us to ride through the occasionally bad periods of performance that even great stock pickers experience. Despite these efforts, sometimes events outside our control force a change—such as when Bruce Bee (one of the original Litman Gregory Masters Funds International managers) died. The other reason for a change would be if our opinion changes with respect to a manager’s ability to deliver good performance.

When we believe it is in shareholders’ best interests to make a change it is almost always because of one or more of the following reasons:

  • We believe we were wrong about the stock picker’s skill.
  • We realize that the stock picker is not at his or her best running a highly concentrated portfolio.
  • Something has changed at the stock picker’s organization that reduces our confidence in the ability of the stock picker to perform well going forward.
  • We come to believe that the stock picker is not adequately attentive to the Litman Gregory Masters Funds portfolio.

Fortunately, we have not had to make many sub-advisor changes over the years across the five Litman Gregory Masters Funds funds.