Having more experience in the active management of investment funds does not guarantee better performance
New research shows that a fund manager’s experience does not necessarily produce better performance. The study was undertaken by Cass Business School and sponsored by Banco Inversis.
While many academic studies focus on the performance of actively managed funds, 'The performance of long-serving fund managers’ focuses on the performance the fund managers. The study looked at the performance of a sample of 360 individual US fund managers who had all managed the same fund for at least 10 years.
The study found that the average, net of fee, risk-adjusted performance of these managers over the ten years of our sample was attractive compared to similar values calculated for wider samples of the manager population.
However, the study concludes that this result is probably a reflection of survivorship bias, since it finds little evidence of performance persistence from year to year among these managers, and evidence to suggest that the risk-adjusted performance of these experienced managers actually declined over the ten year study sample period, that is, a decline in performance as experience increases!
But for those investors who would still prefer to invest with an experienced fund manager, the study also reveals certain key traits that are related to positive risk-adjusted performance of experienced managers, such as relatively low fund fees, more concentrated portfolios and a small cap style bias
Andrew Clare, Professor of Asset Management at Cass Business School, said:
“This report tackles a long-standing myth. Until now, the saying that ‘there is no substitute for experience’ has gone unchallenged in the world of asset management. With this analysis we can determine that this is not actually the case."
You can download the complete study here.