It May Pay to Check If Fund Manager’s a CFA

Most investors probably know by now that it’s a good idea to find out more about who’s running their mutual funds by looking at such factors as investment experience and tenure on the job.

What many might not realize is that it also can be wise to pay attention to the professional designations, if any, earned by a particular fund manager.

A study by two New York finance professors suggests that managers with a chartered financial analyst (CFA) designation may fare a bit better than their peers.

Assistant professors Ravi Shukla of Syracuse University and Sandeep Singh at State University of New York looked at the performance of 233 stock funds from July, 1988, through December, 1992. They found that the CFA managers posted an average return of 1.18% per month over the study period, compared to 1.07% for their rivals.

The performance differential was most pronounced among aggressive-growth stock funds, where the CFAs averaged about half a percentage point better each month.

The Shukla-Singh study, completed late last year, hardly implies that you should limit your fund investments to those run by a CFA. But it does help bolster the prestige of the designation, which has become one of the most respected acronyms in the investment business.

Unlike the more common master of business administration--or MBA--degree, the CFA designation isn’t received after completing a graduate program at a university. Rather, investment professionals earn it by finishing a three-year program of self-study and testing.

More than 18,000 people have earned the CFA designation, and another 28,000 are currently pursuing it, including 1,100 in Hong Kong and 900 in Singapore.

“About 20% of all CFA candidates are coming from outside North America,� says Chiles Larson, a spokesman for the Assn. for Investment Management & Research, a Charlottesville, Va., group that administers the program.

Los Angeles has the fifth-highest concentration of CFAs in the United States, with about 950 members.

Of the roughly 2,900 mutual fund managers tracked by Morningstar Inc. of Chicago, 23% have both a CFA and an MBA, another 21% have MBAs only and 13% have CFAs only. The remaining 43% have neither the degree nor the designation.

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A separate analysis performed by Morningstar supports the Shukla-Singh contention that CFAs perform better, albeit modestly.

Morningstar found that funds run by managers having both a CFA designation and MBA degree returned 10.5% annually on average over the five-year period ended April 21. CFA-only funds returned 10.4% over the same period, while MBA-only funds gained 10.2%. The study didn’t include results for funds run by managers with neither a CFA nor an MBA.

Among other things, Shukla and Singh found that CFA managers tend to be younger, with less on-the-job tenure.

“This result is not surprising, because the first CFA charter was awarded in 1963, and only since the 1980s has the number of candidates passing the CFA exam increased appreciably,� they wrote.

Although more widespread, the CFA designation is not becoming a requirement for managers.

“When we hire people, we don’t tell them that earning a CFA is a requirement for their continuing employment,� says Bart Grenier, director of U.S. equity research at Fidelity Investments in Boston.

Still, Grenier, a CFA himself, says the designation is looked upon favorably as a sign that job candidates are interested in investments. And if a portfolio manager or analyst wants to pursue the designation while working at Fidelity, the company will pick up the cost of doing so, he adds.

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But even as more managers upgrade their skills in this manner, it doesn’t ensure that the mutual funds they manage will excel.

While CFA managers fared better than their rivals in the Shukla-Singh study, their funds still had trouble beating the market, with 60% lagging the unmanaged Standard & Poor’s 500 index over the study’s time frame.