(April 17, 2012) — Hiring a ‘skilful’ manager could earn returns up to five percentage points more a year than if an investor opted for a lower calibre candidate, research has shown.
Inalytics, a UK-based manager evaluation firm, found managers classed as having ‘skill’ beat a benchmark set by the lowest performing managers by about 480 basis points per year. This ‘skill’ was split into three sections: get more than half their decisions right, are able to run their winners; and be able to cut their losers.
Managers classed as ‘skilful’ are most likely to be strong in the second section, being able to hold on to a stock that has performed in the past and continues to do so when held in the portfolio, Inalytics said.
Rick Di Mascio, Chief Executive Officer and founder of Inalytics, said: “The fund management industry often talks about its ability to run winners but we know from previous research that managers tend to sell their stocks too early. As far as we know, this is the first time anyone has established evidence to support the proposition that some managers are skilful.”
Inalytics carried out research on 760 equity portfolios from around the world and found the top two quartiles of managers returned an average annualised performance of 242 bps and 102 bps above average. By comparison, unskilful managers in the lower two quartiles returned ‐101 bps and ‐238 bps.