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A Multi-Manager Approach to Better Return Consistency
MassMutual Select Mid Cap Growth Fund
Interview with: Joe Fallon

Author: Ticker Magazine
Last Update: Jul 24, 11:49 AM ET
Multi-manager funds offer diversity and flexibility that a single-manager fund may often lack. Joe Fallon, who highlights the advantages of the MassMutual Select Mid Cap Growth Fund, explains how the pairing of successful managers boosts the probability of consistency in returns and provides access to strategies that are generally not open to new investors.

ďThe fundís primary advantage is that it offers investors access to asset managers that might otherwise not be available to the public.Ē
Q: What is the history and mission of the fund?

A: The MassMutual Select Mid Cap Growth Fund opened on May 31, 2000 with the mission is to provide our shareholders consistent, superior performance over time.

What we do is identify asset managers with well-above-average performance in both up and down markets. Each manager is allocated a portion of the fundís assets, which they manage independently. We monitor the combined portfolio to insure consistency with the fundís stated objectives.

Currently, T. Rowe Price Associates, Inc. and Frontier Capital Management Company, LLC are our subadvisors and the fundís total assets are approximately $3.4 billion.

Q: What is your investable market capitalization range?

A: The range for our investable names typically falls within the Russell Mid-Cap Growth benchmark. While we look at companies that fall within the $3 billion to $30 billion market-cap range, most of our portfolio consists of companies with market caps of $7 to $13 billion.

Q: Why did you choose Frontier Capital as the second manager?

A: When T. Rowe Price announced in 2010 that it was closing its standalone strategy, MassMutual had the option of closing our fund to additional investments or expanding its capacity by adding another manager. We felt it was worthwhile to take on some business risk and decided to add a second manager. We looked for a manager with a performance history like T. Rowe Price.

Frontier was added as a subadvisor in 2010. They offered a similar investment philosophy, process, and risk profile. When combined with T. Rowe Price, the historical return pattern offered a lower, combined standard deviation with similar upside returns. Our fund tends to do well in down markets, and by adding Frontier, we enhanced our risk-return profile.

We have good working business relationships with both firms. Our cash flow has been steady so that the managers arenít being hit with too much money at one time, which could create liquidity issues for -some of the names in their portfolios. Liquidity is not normally an issue in the mid-cap market, but it certainly could become a problem if money were coming in too fast.

Q: What is the main advantage of investing in your fund?

A: The fundís primary advantage is that it offers investors access to asset managers that might otherwise not be available to the public. Frontier does not run its own mid-cap growth fund, so our fund gives investors exposure to Frontierís management expertise.

T. Rowe Price does have their own mid-cap fund; however, because of capacity issues at various times, it is not always open to new investors. MassMutual can allocate assets between managers, so we can continue to keep our strategy open.

Q: How do you select and monitor investment managers?

A: As the fundís advisor, we are responsible for hiring the investment managers that manage our assets. Both T. Rowe and Frontier run their individual portfolios independently and make their own buy and sell decisions. At the end of each day, our custodian rolls up all the transactions so that we can track the fundís performance.

As part of our management oversight responsibility, we check that both T. Rowe and Frontier are staying within our guideline.

Q: How do you allocate assets between these two managers? Do you have plans to increase the number of managers?

A: Currently, the asset split is 80% for T. Rowe Price and 20% for Frontier. As assets flow in and out of the fund, we maintain the ratio between the two.

We have no plans to add a third manager now. Our cash inflows have been steady, especially since the beginning of 2014, and we continue to provide a stream of new assets for both managers. If the fundís assets grow so large that they exceed the capacity of our current managers, then we may be forced into the marketplace to find a third manager. In which case, we would look for an experienced manager with a similar investment style.

Q: Are there any specific guidelines that you provide to your investment managers?

A: In general, what we are looking for from our managers can be summarized by the three Ps - people, process and performance.

While past performance is not indicative of any future result, the people we hire to manage the fundís assets must have a proven track record, portfolio management expertise, and resources necessary to continue driving the excess returns to meet our goals.

In addition, we must also feel comfortable with the methodology the managers use in picking stocks and assembling their portfolio. The process must be robust and applicable to any market conditions. Finally, we analyze the fundís performance on a continual basis to make sure that the managers are generating the return that we expect.

Q: How do you handle the portfolio overlap between the two managers?

A: The T. Rowe Price portfolio has about 140 names and the Frontier portfolio has about 90. But for the fund in total, there are only about 200 names; so, the overlap is about 30 names. We are okay with that degree of overlap since the portfolios are being managed independently. If the managers are optimizing their portfolio decisions, then the MassMutual Fund shareholders are getting the 80/20, T. Rowe Price/Frontier, split advertised.

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