Does it make a difference as a fund manager how well qualified you are? This intriguing question is raised by an new piece of academic research that looked anew at the question of whether a manager holding a CFA (Chartered Financial Analyst) or MBA is likely to produce superior returns in a fund. I am grateful to the publication Index Investor for alerting me to the findings of a recent research paper* on this topic by Oguzhan Dincer, Russell Gregory-Allen and Hany Shawky.
Three years ago in this space I noted that Dow Theory had given an important technical signal on 23 November 2007 indicating that the US equity market had entered “a primary down trend”. Although the equity market looked temporarily oversold, what it appeared to mean, if you believed in such things, I suggested, was that “investors should be preparing for a market whose underlying trend from here is down, not up”. Well, that didn’t turn out to be a bad call, as the Dow Jones index subsequently fell by 50% to its March 2009 low, and as of last week was still trading 15% below its level at the time the signal was given.
One of the issues raised again by Niall Ferguson’s absorbing new biography of Siegmund Warburg is why someone regarded, rightly, as “the most important City figure of the postwar period” should have had such an apparent blind spot about the growth and profit potential of investment management as a business.
It is nearly 40 years since Charley Ellis first categorised investment management as a “loser’s game”. Many institutional investors have taken on board that counter-intuitive message – but how many financial advisers have also absorbed the fact that a proposition that explicitly or implicitly promises clients they can pick funds that consistently beat the markets after costs is a near-certain losing proposition in the long run?
The general election has thrown up many interesting issues for investors, but none was so marked as the continuous disparity, up to and including polling day itself, between the outcome in seats implied by the opinion polls and endorsed by many pundits, and the different outcome that was forecast throughout in the odds quoted by bookmakers and on the betting exchanges.
What are the lessons of the Madoff scandal? The more that comes out about this incredible story, the more complex and intriguing it becomes. Harry