Last but not least, the authors of the CFA study also found that funds with long-standing track records and experienced managers tend to underperform. “Investors should be aware of older funds run by long-serving managers,” they warn.
That leaves the question why star managers outperform teams, even when corrected for their more concentrated portfolios. The authors suggest that “organisational diseconomies [could] erode fund performance”, with responsibilities between the different managers not always having been outlined clearly.
Star managers can also simply anticipate quicker when market conditions change. As Beatriz Gimeno Gimenez, a fund selector at Morabanc in Andorra, told Expert Investor earlier this year: “The more people are involved in making investment decisions, the more likely you are to lose conviction.”
What the authors didn’t look at in their study, is volatility. Funds managed by one person may well be more volatile because of their bolder investment style and often less-developed risk management function. After all, an important reason for a fund to have a diversified portfolio is to hedge its risks and keep volatility within limits.
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