SOMETHING FOR THE WEEKEND
Factor tilts.
You can’t blame fund managers for taking the credit for outperformance. After all, as only around 1% of them beat the market with any degree of regularity, they rarely have the opportunity. It’s natural, too, that most financial advisers ascribe strong returns to managers’ expertise; they’ve built their business models on their ability to pick the best funds. Journalists too are predisposed to emphasise skill; star managers make great copy, quite apart from the advertising revenue they generate.
In reality, though, much of what passes as skill in fund management actually isn’t. With around 200,000 active managers in the world, you’d expect there to be winners by the law of averages. In fact, rather fewer funds outperform consistently than you’d expect by random chance. Luck undoubtedly plays a part in outperformance, though precisely how much of a part it’s difficult to calculate.
But there is another explanation for outperformance that’s often overlooked, and it’s this. Many managers who have beaten the market over the long term have done so simply by tilting their funds towards the different risk factors that are known to deliver higher returns.
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For further information, contact Sam Willet on (0)121 285 2585 or at s.willet@regismedia.com
Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
