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What to Do When Your Mutual Fund Gets Sold

Rob Silverblatt

Investors in 17 HighMark Capital Management mutual funds will be seeing a new name on their prospectuses. Under a recently cemented deal, Nationwide Financial will acquire the funds, which have roughly $3.6 billion in assets under management.

For investors, fund acquisitions raise a number of potential issues. In particular, analysts typically recommend that investors in funds affected by acquisitions keep their eyes open for changes, most notably in the following categories:

Management. When a fund changes hands, the most important thing is whether the management team will stay the same. Mutual fund managers control the direction of their funds and are responsible for making the buy, sell and hold decisions.

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In some cases, new managers will seek to avoid rocking the boat and will follow in the footsteps of their predecessors. Other times, shakeups will occur. Ideally, a new manager can revitalize a struggling fund. In other cases, though, a new skipper can put a drag on the performance of a once-promising fund. With that in mind, it is important to note that management changes are neither inherently good nor bad. However, what such changes should do is prompt an investor to reevaluate the fund to make sure it still fits his objectives.

Strategy. Will your large-cap fund start focusing on value stocks rather than growth companies? Will your small-cap fund move away from penny stocks and pay more attention to companies on the larger end of the small-cap spectrum? Investors should be conscious of the fact that even if a fund, following an acquisition, keeps the same management team, that does not guarantee the product's strategy will remain constant.

Sometimes, changes in strategy will be readily apparent. Alternatively, they could take time to materialize. One way to gauge changes in strategy is to compare a fund's holdings from one reporting period to the next.

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Nationwide and HighMark are seeking to eliminate some of these uncertainties by providing for what they anticipate will be a smooth ownership transition. As part of the deal, the management teams for all 17 funds will stay in place. Meanwhile, according to Nationwide Funds President Mike Spangler, the funds will also continue to pursue the same strategies that they did under the HighMark name.

According to Spangler, the main objective of the acquisition is to give Nationwide the opportunity to expand its offerings and reach new customers. "The fit for us was good from a growth perspective and also [from the perspective of] our business model," he says.

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Jeff Tjornehoj, Lipper's head of Americas research, says investors in the HighMark funds will probably notice little to no difference when Nationwide takes control of their portfolios. "I think it's certainly comforting to investors and the advisers who put them in these funds [that the companies are treating] the handover delicately," he says. "Whenever there's an abrupt change, you invite the question of whether or not the investor wants to stay in the fund. But by giving [investors] very little to complain about, it could be a good transition for ... them."

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