Fans of absolute-return investing claim it represents ‘the future of asset management’, its attackers that it is just a fad. Most investment fads are intellectually lazy: they describe concepts but appeal to emotions. The most appealing of investment concepts are versions of the free lunch: the ‘something for nothing’ culture.
read more Research by Stuart FowlerThe performance myth persists partly because of the emergence from time to time of ‘legendary’ managers. One such is Anthony Bolton, soon to retire as manager of Fidelity’s Special Situations fund. How does he fare when measured against such tests? He’s good but not good enough to replace a tracker, even to the extent of 20%. He also demonstrates the fatal practical flaw of active management:even for the best managers after the event, relative performance is so inconsistent along the way that most advisers, let alone their clients, cannot stay the course.
read more Commentary by Stuart FowlerAn FT letter writer recently described tracking a stockmarket index as ‘a race in which the athletes absurdly strive for an average performance’. This is a common misconception, arising from extrapolating short-period relative returns (where the description fits) to long periods. In fact, at some time horizon the lowest-cost trackers are bound to achieve significantly better returns than the average actively managed fund.
read more Commentary by Stuart FowlerNewly published research by the University of Exeter’s Centre for Finance and Investment analysed the performance of UK equity performance in 2,175 segregated UK pension funds between 1983 and 1997. Author Professor Tonks found weak evidence of persistence of outperformance from one year to the next, based on averages of the top quintile (some 400 funds).
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