Finding The Best Fund Manager
Published on Monday, 19 March 2012 23:41 Written by Greg McFarlane
You're a responsible investor, striking the appropriate balance between aggression and conservatism when deciding where to place your money. So, that means you do what the textbooks recommend, and you buy shares of a mutual fund; but the choices can be overwhelming.
The Investment Company Institute, a trade association for mutual fund companies, notes that there are over 7,000 active mutual funds in the United States at any given time. Each fund has a professional manager, if not a management team, which makes the prospect of finding the best available manager a daunting one. What criteria do you use? Pedigree? Education? Reputation? Of course, none of that is quite as important as results.
We've all seen the news stories about monkeys in the zoo that pick stocks as successfully as (at least some) professional fund managers do. The dirty little secret of investment management is that, unlike almost any other field of quantifiable endeavor, the same names don't necessarily predominate year in and year out. This year's big winner might not be next year's big loser, but there's no guarantee it'll stay on top, either. For instance, Morgan Stanley's Focus Growth Fund was among the best-performing mutual funds of 2010. It gained over 23% that year, or almost double what the S&P 500 did.
That comes with a qualification. Dividing one entity's gain by another's and coming up with a number close to 2 doesn't necessarily mean that the former performed twice as well as the latter. If we're looking at prices, rather than just the increases in those prices, we have to include the original levels, before conducting our comparison.
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