Shock horror…more proof that indices do better than managers
Monday, 17 November 2008
... you don't have to be Hercule Poirot to prove it!
Standard & Poors is the world's foremost provider of independent credit ratings, indices, risk ...were reported in a small section of the FT, providing new evidence that active managers struggle to outperform their benchmarks over any extended period of time.
The conclusions are not new, but they are often little promoted. Active fund managers, which most investors employ (not necessarily on purpose but often by default because they have not been explained properly what they are buying) do not want to promote the fact they are not out performing the market indices over time.
If investors are not given good information, does that mean they need to be Hercule Poirots, seeking out the smallest of clues to solve financial mysteries! Hopefully not, but a questioning attitude or carrying out your own due diligence will certainly help.
The FT went on to say "Standard & Poor's Index Services has relaunched its Spiva scorecard, which compares the performance of US mutual funds and benchmark indices. Using data corrected for survivorship bias, the scorecard shows the benchmarks outperformed the managers in at least 70 per cent of cases in almost all categories"
What happened in the remaining 30%? How many active managers will persuade you, as investors, that they are different and fall within the 30% band. Statistically that cannot be true, but investors will find it difficult, unless they have the skills of Hercule Poirot, to know whether they are actually beating the indices or not.
If you do not have adequate information and knowledge to make a decision, just start using probability. Ask yourself if 70% is a bigger number than 30%? If so, might it be worthwhile 'betting' with the 70% rather than taking a chance on the 30%?
Still not too sure…well according to research by Cass Business School, Retail investors should invest in some sort of index tracker, because even among funds that outperform, the chance of picking the wrong fund is high. Hmmm more evidence and I feel another blog coming on.
posted by Murray Round Wealth Management @ 11:24,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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