There are several reasons that you may wish to review those funds that you have in your portfolio from time to time. Below is a list of possible red flags that your mutual fund needs to be reviewed. These red flags don’t necessarily mean that it’s time to bail on the fund but at the very least you should review them to make sure they are still doing what you hired them to do.

Manager Changes:
Perhaps the bigges red flag is when there is a manager change within a fund.  The bottom line is that you are hiring the manager to execute his or her strategy. If they are no longer running the fund then someone else is and they most likely will run the fund differently. No two managers are exactly the same so you should expect if there is a manager change on a fund, that the underlying investment strategy that is being executed will change somewhat.

Key analysts leaving the team:
While most people believe the most important person on a fund is the lead portfolio manager.  Most times this is true, but almost every fund has analysts that support the lead portfolio manager, and these analyst can be just as important an any other person on the team.  If one or more of these key individuals were to leave the fund the overall strategy could be severely impaired. 

Changes in investment process:
When I select a fund I want to make sure that the managers of the fund have a clearly defined and repeatable investment process.   It is very important that you understand the strategies employed by the portfolio managers so that you know what to expect from a returns standpoint. 

If a manager ever changes there investment strategy/process it makes me question their motives. They may have every reason to make a change. Possibly they have realized that their strategy will not work in the current investment environment and decided to modify the strategy to attempt to take advantage of what the market is giving them. But if you were sold on the old investment process why the need to change it now? Usually there is none.

Large flows of money into or out of a fund:
This is especially important when you own the fund in a taxable account. If one or two large shareholders takes their money out of the fund it is possible that there will be a considerable tax consequence if the manager needs to sell holdings in order to accomodate this withdrawal of funds. While this is not a problem for the shareholders of the fund in an IRA or 401(K) it can be a large problem for those that hold the fund in a taxable account. It is very possible that you will be stuck with the tax bill for all of these sales.

Merging of funds
Usually the merging of a fund is done to get rid of an underperforming strategy. The merging of funds can create an added cost to the underlying fund if they need to sell certain stocks in the underperforming fund in order to get better aligned with the merged fund.

Update 2.11.09
Raising Fees or One Time charges
Clearly raising of your fees paid to a fund should give you pause and make you reconsider how shareholder friendly they truly are. Especially in low return environments the expense ratio eats away at your returns and the lower the better (at least for you)

Morningstar has a recent example of a one time charge. In 2008 Seligman funds agreed to be purchased by Ameriprise, but now shareholders of Seligman are having to pay a one time charge to change transfer agents.

In a January 2009 prospectus update filing for the Seligman funds, the firm announced that it was sticking the funds with a one-time charge of approximately 0.16% per fund relating to a change in transfer agents (up to a fund’s expense cap). RiverSource undoubtedly wants to use its own transfer agent, which is reasonable, but why should shareholders pay for the change? Often the surviving fund company picks up any non-recurring charges relating to a fund company merger/acquisition.