study findings will surprise most Indians as many of India’s top fund managers
continue to perform well despite being around for 2 decades!
A study carried out by Bryant University’s Finance
Professor Jack Trifts claims that a fund manager’s performance actually gets
worse with more experience. According to a release, the study came up with
- Solo fund managers who survived more than 10 years were
likely to have performed at or above the market in their first three years;
- Managers with tenure of 10 or more years are likely to
have significantly poorer performance the longer they manage;
- Although each of the very best managers generated positive
compounded annual market-adjusted returns following their first three years,
the majority were not able to maintain that level of performance.
Trifts examined data spanning 80 years to identify the
best solo fund managers. The study also examined the relationship between
performance and tenure of 289 fund managers of 355 actively-managed funds.
Trifts claims that the longer a manager runs a fund, the higher the likelihood
of mean revision setting in. The study does not even spare Peter Lynch,
arguably the best fund manager of all time.
However, this would come as a big surprise to most Indian
observers as many of India’s top managers have managed to sustain their
performance over two decades, in varying market conditions. Names like Prashant
Jain, K. N. Siva Subramanian, R. Sukumar,
Apoorva Shah, S. Naren, Mahesh
Patil and Kenneth Andrade come immediately to mind.
But the Bryant University study paints a completely
different picture of the approximately $3 trillion US fund industry. The
findings reveal that even the best solo fund managers “seem to get worse at
their craft the longer they practice it.” The study simply states that superior
performance is really just random luck.
In fact, this latest study merely echoes the findings of
similar studies carried out in the past. Eugene Fama (who developed the
efficient market hypothesis in the 60s) and Kenneth French had come out with a
study in 2009 which stated that it’s not possible to tell if actively managed
funds which beat their benchmarks do so because of luck or skill.
For the US, the jury is out on this one.