Fund managers experience and profitability don’t always go hand in hand

Having high experience in the active management of investment funds does not guarantee better yields.

This is the main conclusion of the study ‘The performance of long-serving fund managers’, promoted by Banco Inversis and supervised by the IAB (International Advisory Board), together with the faculty of Finance of the Cass Business School in London, which analyses the correlation between the years of experience of a fund’s manager and its profitability.

While studies published up until now have focused on the results of actively managed funds, this new study puts the focus on the performance of its operators. With this in mind it uses a sample of 360 individual American managers with at least 10 years of experience in the management of the same fund; with reference to the fund’s performance between January 2005 and December 2014.

The report seeks to ascertain what impact the characteristics of a senior manager have on the performance of a fund, such as their level of education or degree of specialization, and also aspects related to the product. That being said, the analysis shows that funds with higher returns are those managed by professionals with financial studies, relatively low commissions, a more concentrated portfolio and a tendency to invest in small-cap companies.

Although at a general level a 60% of the managers of the sample managed to beat their benchmarks throughout the period analysed, the results indicate a lack of consistency: in six of the ten years taken as reference the average return it is below the benchmark. This data allows us to conclude that, contrary to popular opinion, experience or the duration of the fund manager does not ensure stability in the results from year to year.

Andrew Clare, professor of the faculty of Finance at Cass Business School, notes that “this report dismantles a myth. When we faced the study we started from a very simple basis, the saying that “there is no substitute for experience” which until now has gone unchallenged in the world of management. With this analysis we can determine that this is not the case, which is a new point of view, not only for the sector but for investors when making decisions about their assets.”

Click here to download the complete study.

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