Star fund managers who enjoy public recognition can attract investors on the basis of their reputation alone. And given that such esteem is often the result of stellar returns, investors can be fairly sure that their cash is being looked after by someone who knows what they're doing.
So what happens when a star manager leaves a fund or decides to take a back seat? Should investors get out - perhaps following a departing manager - or stick with the fund?
This question is likely to be on the lips of investors in the Credit Suisse Asset Management (CSAM) Income and Monthly Income funds. Last week CSAM announced that, from August, manager Bill Mott will be leaving the day-to-day running of the funds to Leigh Harrison, who currently manages CSAM's Alpha Income fund.
Unfortunately, independent financial advisers (IFAs) can't agree on whether investors should stay put or switch. IFA Hargreaves Lansdown favours sticking, as Mr Harrison is "exceedingly capable". But IFA Chelsea Financial Services is no longer recommending the Income and Monthly Income funds to new investors, while its advice to existing investors is to hold on and wait and see.
It is easy to see why CSAM is keen to downplay Mr Mott's decision because, in 14 years of managing the income funds, he has built up an enviable reputation for making money. This has, in turn, attracted new money, resulting in just over £1bn in funds under management.
However, switching funds on a regular basis in order to follow your manager to a new investment house is both costly and very time-consuming, as managers are not known for sticking around. Since the start of April, 14 have switched funds, according to IFA Bestinvest. In October last year, research from CSAM revealed that two-thirds of all funds have had changes at the helm since 1999.
Take fund manager Tim Russell. If you had invested in his Lazard Income fund in spring 1998 and decided to stick with him, you would have racked up charges for switching - as much as 5.25 per cent each time - over the past four years to follow him to HSBC and later Cazenove.
However, many in the industry believe that gifted managers deserve their loyal following. Nick Greenwood, head of investment at portfolio manager Iimia, says: "Good funds are very often controlled by one person. There are very few individuals who are very effective."
Alan Adam, a consultant at IFA Alan Steel Asset Management, agrees: "We have always been big believers in star managers' value. They can make a fund."
He believes the team approach, where a number of managers work together on decisions, shows a lack of confidence in individual skills and a fear that money will leave with any departing manager.
The cult of the star manager has focused the spotlight on past performance figures - and particularly the high returns that may be attributable to one person's stock-picking expertise. In these situations, investors should beware: they may be looking at a "ghost performance" achieved by long-departed managers.
"You need to know where performance has come from," warns Meera Patel, senior analyst at IFA Hargreaves Lansdown, who adds that even stars aren't immune to misfortune: "You have to expect that, from time to time, every manager has periods of underperformance, and certain times you will get caught up in stocks that don't perform."
Sue Whitbread, director of IFA Chartwell, says that if you are determined to follow a manager, it's best to shop around among brokers and IFAs. Investors have to pay an initial charge, typically 5.25 per cent, for going into a new fund. However, if you invest via an IFA on an execution-only basis, or use a fund supermarket such as Fidelity's Funds-Network, they should be able to negotiate a substantial discount.Reuse content