In mutual fund invstment the aim is to beat the index. To this end new strategies are introduced regularly and the current one is to follow the most successful (star) managers. The logic is intuitively very appealing.
The well known firm Citywire conducted a study to identify the current top fund managers in the UK market.and the results were announced a few days ago, They found that in a universe of 900 managers, 12 had beaten the index every year for the last 6 years.
Star managers attrack huge inflows of money to their funds and not surisingly, they become celebrities and paid telephone number salaries, bonuses and share options.
But I have done some calculations. Assuming a 50% chance of beating the index, the probability of 6 wins in 6 years is 1/64, which gives 14 managers (actually a little less because of fund charges), virtually identical with the result of the study. Those 12 star managers , then, were probably just lucky.
I believe in index trackers. And you?
2006-07-28
02:33:39
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5 answers
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asked by
Anonymous
in
Investing