Times are changing and the once darlings of the financial industry have fallen on hard times as the fund management industry is going through a rough phase. The clients are becoming restless with the turn of events while the managers are figuring out ways to stay afloat with more than half the managers failing to retain their previously held top spot.
Here are a few things you didn’t know about this industry.
Blame it on luck
It is ironic that fund managers blame their underperformance to bad luck but never do the same when they overperform; that they attribute to their skill. It is common sense that no individual will wontedly underperform. What these managers fail to acknowledge is that human error is the cause of overperformance for some and underperformance for others.
Fund managers are slow to adapt
The current investor’s trend is a herd mentality wherein they are simultaneously in “risk on” and “risk off” mentality. As a result, when the market is wobbly all shares are sold simultaneously which makes diversification a total waste of time. Most fund managers fail to identify this trend and hence unable to reset their portfolio management techniques leading to their underperformance.
On an average 50% fund managers underperform
It is a common industry secret that 50% of active fund managers underperform even when the market is performing well. Hence, if you are an investor you must be wary of using fund managers. Even those managers who are in charge of commodities fail to deliver alpha.
What can you do as an investor
It is obvious that it is the fund manager and not the firm that plays a key role in fund management. Hence always stick with people who perform and not a firm which is at the top because you never know if the next manager will deliver an alpha or not.
Make sure that you fully agree with your manager’s strategy because ups and downs are part of the game but the long-term benefits are possible only when you adopt a proper investment approach. Do not overlook experience because these advisors have seen the market’s ups and down and will have a better understanding of how things work and what the pitfalls are than anyone else.