In this blog, we quote part of the December 2011 newsletter from Absolute Return Partners LLP. In their newsletter they review reports on the performance of Fund Managers from many countries, and conclude that for the most part, even the most famous fund managers, over a sustained period, are not worth investing with.
Our view mirrors this conclusion as we believe that buying most large cap funds, or buying sector large caps, or buying mutual funds that in any way mirror indexes, derivatives based on sectors, large caps, or indexes, is a losing game. By the time fees are paid, fund expenses are deducted, and expenses are paid, buyers of these funds are not rewarded.
The Absolute Return Letter December 2011 The Facts They Don’t Want You to Know
What have Bill Gross, John Paulson, Anthony Bolton and Bill Miller all got in common? They are all ‘rock star’ fund managers who have fallen on hard times more recently. Life in the fund management industry is not what it used to be like. Life is tough even for the supremely skilled.
Markets are changing, fund managers are struggling to adapt and clients are growing restless as a result.
If I told you that the composition of an average UK equity fund changes by 90% a year, would that startle you? How would you feel if I added that the 20 funds with the highest turnover returned just 4.7% to
investors in the 3 years to the end of March 2011 whereas the 20 funds with the lowest turnover returned 16.8% over the same period?
From the same source: Out of 1,230 funds across 12 different strategies, only 35 fund managers produced a performance consistent enough to earn their fund a place in the top quartile in each of the last three years. In a universe of 1,230 funds, over a three year period and completely disregarding skill, the expected number of funds consistently ranked in the top quartile is 1,230*0.253 = 19.22.
In other words, more than half the 35 managers were there not because of skill but because, statistically, someone was always likely to ‘overachieve’. This leaves about 15 fund managers out of a universe of 1,230 who could with some right claim that they have consistently been in the top quartile.
Resources
We have consistently advised readers that in order to have a decent return in the stock markets, investors should look to resource companies with resources that will be needed in the near future. We have specified the reasons previously and repeated them.
We have also consistently advised that the odds of making a decent return rest with investing in the junior sector where operations and assets are much more transparent, and they are not obscured by the multiple layers of management and administration that is prevalent in larger organizations.
The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.
