67% Of Fund Managers Undershoot Their Benchmark

Published in Investing on 29 November 2011

Professional City investors suffer another bad year.

One of the things that first brought us here at The Motley Fool to prominence was our assertion that the majority of fund managers fail to deliver on their promise. In short, they fail to beat their respective benchmarks.

Which is one reason, of course, why we've enthused so much about index trackers over the years. Why pay for active fund management, when a cheaper passive tracker can do a better job?

But even so, it's a message that the investing public doesn't always hear -- in large part, of course, because there's an entire fund-management industry, with its hefty advertising budget, devoted to drowning the message out.

Another year, another flop

The Daily Telegraph has seemingly become the latest to stumble across the news that active fund managers fail to deliver the goods. Citing Citywire research that is yet to be published, a headline screams that 'two in three fund managers fail to beat their benchmark'.

Just 33% of the managers of some 1,800 funds have added value this year, apparently -- across asset classes as diverse as equities, bonds, commodities and property. It's a damning indictment, and apparently the performance worst for a decade.

Better news for equity funds

The good news for investors in equity funds is that their funds, both in the UK and in Europe, fared rather less badly than investors in the 'average' fund -- in part, it seems, by the funds moving into defensive dividend-paying shares, which have held up quite well as the general market tanked.

Even so, the fact remains that an enormous number of active managers, on the whole, can be beaten by the humble tracker.

But not every manager. Among three that Citywire and the Telegraph pick out as beating their benchmarks are bond veteran Richard Woolnough, as well as two managers noted for their defensive stances: Hambro's John Wood, and Invesco Perpetual's Neil Woodford.

Foolish bottom line

Another year; another non-surprise. The numbers might be different, but the message remains the same.

Paying for active management can make sense in the case of gifted managers and asset classes that are tricky for the individual investor to research.

But in the case of the average fund, and the average manager, investors continue to pay a Rolls-Royce premium for Lada returns. 

More from Malcolm Wheatley:

> Enjoy the Fool's latest wealth report -- How To Stay Rich -- while it's still free and available!

Share & subscribe


The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

Snorvey 29 Nov 2011 , 9:12am

Legal & General do a Gilt Tracker as well as an Index Linked Gilt Tracker for 0.25% TER.

HSBC track indexes from around the world for around than 0.30% and there are FTSE AS/100/250 trackers to be had for less than 0.30% from Fidelity, HSBC and Blackrock

Blackrock also do a Corporate Bond tracker and an Emerging Markets Tracker for 0.25% and 0.29% respectively.

Why on earth would you pay 6 times more?

G12th 29 Nov 2011 , 9:49am

Some of these Trackers offer great value.

Such a shame that Hargreaves Lansdown will double charge on them through my SIPP.

Bristol Bandits!

TomRoundhouse 29 Nov 2011 , 1:30pm

This example of the stupidity of some fund managers might amuse you all. In spring this year a joint manager of the Schroder Income fund announced that "taking a 10 view" he was buying banks. Of these holdings I gather that Lloyds was one of the biggest holdings. When I heard this I asked for the name of his dealer because whatever he was smoking must be really good stuff. A retarded gnat could have told him he buying into well defined downtrend. At the time Lloyds shares were around 65p. They closed yesterday a little over 23p. I think he might need those 10 years to recoup what he paid let alone make a profit. As the article suggests, choose your managers with care.

rober00 29 Nov 2011 , 5:03pm

It is well known that a private investor with a modecom of common sense can beat 50% of active fund managers any time!!!

dubre 29 Nov 2011 , 6:38pm

How could it be otherwise.The message might come over more effectively if the sums of money were more feely given.I have before me the annual report for an IT.Random in the sense that it happened to be on my desk.This trust lost~20% for 2011.The declared TER is ~1.5% & far from being the worst in the sector.The management fee alone is over £900,000 plus "other" expenses of £487,000.This for a fund of only~£100m.On top of this the company pays 1.75%pa on around £6m in a fund run by the same company.

Join the conversation

Please take note - some tags have changed.

Line breaks are converted automatically.

You may use the following tags in your post: [b]bolded text[/b], [i]italicised text[/i]. All other tags will be removed from your post.

If you want to add a link, please ensure you type it as http://www.fool.co.uk as opposed to www.fool.co.uk.

Hello stranger

To add your own comment, please login.

Not yet registered? Register now.