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.
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Cass Business School, which is part of City, University of London, is a leading global business school driven by world-class knowledge, innovative education and a vibrant community. Located in the heart of one of the world’s leading financial centres, Cass has strong links to both the City of London and the thriving entrepreneurial hub of Tech City. It is among the global elite of business schools that hold the gold standard of triple-crown accreditation from the Association to Advance Collegiate Schools of Business (AACSB), the Association of MBAs (AMBA) and the European Quality Improvement System (EQUIS). The faculty at Cass are experts in their fields, producing cutting-edge research with real-world impact. The recent Research Excellence Framework results assessed 84% of Cass research to be world leading or internationally excellent. Cass educates nearly 4,000 students each year on globally renowned programs across all levels of study from undergraduate, to masters, to Executive Education. On graduating, students join a 38,000 strong alumni community across more than 160 countries. Cass Business School blends academic excellence, extraordinary experiences and career progression to foster life-long learning.
City, University of London is a global institution committed to academic excellence, with a focus on business and the professions and an enviable central London location. It is the top higher education institution in London for student satisfaction (The Complete University Guide), is ranked 18th overall in the United Kingdom (Guardian University Guide) and is among the top five per cent of universities in the world (Times Higher Education World Rankings). City has around 19,500 students (46% at postgraduate level) from more than 150 countries and staff from over 75 countries. More than 130,000 former students from over 180 countries are members of the City Alumni Network. City’s academic range is broadly-based with world-leading strengths in business; law; health sciences; mathematics; computer science; engineering; social sciences; and the arts including journalism and music.The University’s history dates from 1894, with the foundation of the Northampton Institute on what is now the main part of City’s campus. In 1966, City was granted University status by Royal Charter and the Lord Mayor of London became its Chancellor. In September 2016, City joined the University of London federation and HRH the Princess Royal became City’s Chancellor. Professor Sir Paul Curran has been Vice-Chancellor and President of City since 2010.
