Is your money being run by a 2-year-old?

Yeah, silly question. But I'm not talking about toddlers, I'm talking about newbie fund managers  -- folks with less than a year or two of tenure on a fund. While some managers come to a new fund with great investing skills and years of experience, others ... really don't.

And just like a new young driver given the keys to a Ferrari, those neophytes could drive your portfolio into a ditch.

On the other hand, plenty of 16-year-olds turn out to be great drivers after they get some seasoning. The question, then, is whether you can spot the good ones in advance.

The Fidelity story
Fund giant Fidelity long had a system it believed excelled at spotting great talent. Its (in)famous "star system," in which portfolio managers essentially competed against each other to achieve superstar status, certainly succeeded in producing some outstanding returns back in the day, as I recall from my time working at Fidelity.

But it also produced some inconsistent performance, as those managers -- knowing all too well that another batch of new business-school graduates was right behind them, hoping to take their jobs if they failed -- had a strong incentive to take big risks in pursuit of gaudy quarterly numbers. Throughout the 1990s, high-risk strategies tended to get rewarded with good returns. But once the tech bust hit, risk-takers like Fidelity's Aggressive Growth Fund saw spectacular gains turn to huge losses, with the fund going from $22 billion in assets in early 2000 to less than $4 billion in late 2002.

Fidelity has since toned down its risk-taking, partly to soothe institutional 401(k) clients who wanted a little less rock-and-roll in their participants' accounts, and partly because, well, it made sense. Yet although the problem of manager turnover persists, a few Fidelity funds were never affected by it. Not surprisingly, those funds have turned out to be some of Fidelity's best products.

Why isn't that a surprise?
Foolish fund guru and Champion Funds lead advisor Amanda Kish likes to say that a manager's tenure is a great predictor of future performance. I look at the issue from a different angle, believing that managers who can hold onto their jobs at places like Fidelity have found the magic secret of sustained outperformance. But either way, one of the most important keys to picking a great fund is to look for a manager with more than five years' experience. This is about more than just career survival -- an experienced manager is a big plus, especially in challenging market conditions such as these.

Sticking with the Fidelity example, it's worth noting that two of its best-known (and just plain best) funds have managers approaching their third decade of service:

Fund

Manager's tenure

Sample top holdings

Relative performance over past 15 years

Fidelity Contrafund (FCNTX)

18 years Continued...