Step 5 - Manager Pickers



REALIZE THAT WINNING MANAGERS WERE JUST LUCKY

In two 30-year studies, the S&P 500 outperformed 97% and 94% of managers. In addition, only about 12% of the top 100 active managers repeat their performance in the following years. Active managers have a high turnover rate, but a recent study of 660 manager changes revealed that, on average, fired managers beat hired managers in the three years following the hiring or firing. Picking next year’s hot mutual fund manager is a tantalizing, but impossible dream.

 

An in-depth analysis of the study “The Selection and Termination of Investment Management Firms by Plan Sponsors” reveals bad news for investment committees who chase fund managers. An analysis of the eight-year period from 1996 to 2003 showed that when plan sponsors terminate investment managers after underperformance, the excess returns of those managers after being fired are frequently positive. Using a matched sample of 660 firing and hiring decisions, the study finds that if plan sponsors had stayed with fired investment managers, their excess returns would be larger than those actually delivered by their newly hired managers. The results, as set forth in the figure below, demonstrate that during the three-year period prior to the decision, those that were part of a hiring decision performed

an average of 4.59% above the benchmark, while those that were part of the firing decision performed an average of -1.28% compared to the benchmark prior to being fired. However, in the three years subsequent to the hiring or firing decision, the reverse occurred, on average. Those that performed well for the three years prior to the decision performed worse than those that had been fired.

The study’s compelling conclusion demonstrates that the exhaustive efforts of investment committees, as well as the incredible expense, research, reporting and time spent to determine which managers to hire and fire was a “costly endeavor” with results that do not justify the needless activity and excessive expense.

 

 

 

Additional Charts and Graph from Step 5


Step 5		 Top 100 Growth Fund Managers That Remained in Top 100 the Following Year
F5-1
Top 100 Growth Fund Managers That Remained in Top 100 the Following Year		 Mutual fund Manager Ratings
T5-1
Mutual fund Manager Ratings		 Before and After Hiring Returns of Investment Manager
F5-A
Before and After Hiring Returns of Investment Managers 		Before and After Hiring Returns of Investment Manager
F5-B
Before and After Hiring Returns of Investment Manager		 Before and After Hiring Returns of Cenury Small Cap Select
F5-C
Before and After Hiring Returns of Cenury Small Cap Select
  Before and After Hiring Returns of Cenury Small Cap Select
F5-D
Before and After Hiring Returns of Cenury Small Cap Select		 Before and After Hiring Returns of Cenury Small Cap Select
F5-E
Before and After Hiring Returns of Cenury Small Cap Select		 Before and After Hiring Returns of EuroPacific Growth
F5-F
Before and After Hiring Returns of EuroPacific Growth		 Before and After Hiring Returns of EuroPacific Growth
F5-G
Before and After Hiring Returns of EuroPacific Growth		 Before and After Hiring Returns of EuroPacific Growth
F5-H
Before and After Hiring Returns of EuroPacific Growth
  Investment Managers' Performances BEfore and After Hiring and Firing Decisions
F5-I
Investment Managers' Performances BEfore and After Hiring and Firing Decisions		 Investment Managers' Performances BEfore and After Hiring and Firing Decisions
F5-J
Investment Managers' Performances BEfore and After Hiring and Firing Decisions		 Results of Manager Picking by Plan Sponsors
F5-K
Results of Manager Picking by Plan Sponsors		 2007 NACUBO Endowment Study 1-Year Annualized Returns vs IFA Comparable Index Portfolios
F5-L
2007 NACUBO Endowment Study 1-Year Annualized Returns vs IFA Comparable Index Portfolios		 2007 NACUBO Endowment Study 3-Year Annualized Returns vs IFA Comparable Index Portfolios
F5-M
2007 NACUBO Endowment Study 3-Year Annualized Returns vs IFA Comparable Index Portfolios
  2007 NACUBO Endowment Study 5-Year Annualized Returns vs IFA Comparable Index Portfolios
F5-N
2007 NACUBO Endowment Study 5-Year Annualized Returns vs IFA Comparable Index Portfolios		 2007 NACUBO Endowment Study 10-Year Annualized Returns vs IFA Comparable Index Portfolios
F5-O
2007 NACUBO Endowment Study 10-Year Annualized Returns vs IFA Comparable Index Portfolios
F5-P
Harvard and Yale Endowments vs. IFA Index Portfolio 100
F5-Q
Yale University Endowment 20 Year Performance 		Persistence in 5 year Performances of 800 Mutual Fund Managers
F5-2
Persistence in 5 year Performances of 800 Mutual Fund Managers
  Persistence in 5 year Performances of 800 Mutual Fund Managers
F5-3
Persistence in 5 year Performances of 800 Mutual Fund Managers		 Persistence in 3 year Performances of 100 Mutual Fund Managers
F5-4
Persistence in 3 year Performances of 100 Mutual Fund Managers		 Subsequent Performance of Top 30 Mutual Funds
T5-2
Subsequent Performance of Top 30 Mutual Funds		 Top Ten Mutual Fund Rankings
F5-5
Top Ten Mutual Fund Rankings		 2003 Top Ten Managers and Subsequent Performance
T5-3
2003 Top Ten Managers and Subsequent Performance
  2002 Top Ten Managers and Subsequent Performance
T5-4
2002 Top Ten Managers and Subsequent Performance		 2001 Top Ten Managers and Subsequent Performance
T5-5
2001 Top Ten Managers and Subsequent Performance		 2000 Top Ten Managers and Subsequent Performance
T5-6
2000 Top Ten Managers and Subsequent Performance		 1999 Top Ten Managers and Subsequent Performance
T5-7
1999 Top Ten Managers and Subsequent Performance		 1998 Top Ten Managers and Subsequent Performance
T5-8
1998 Top Ten Managers and Subsequent Performance
  1997 Top Ten Managers and Subsequent Performance
T5-9
1997 Top Ten Managers and Subsequent Performance		 1996 Top Ten Managers and Subsequent Performance
T5-10
1996 Top Ten Managers and Subsequent Performance		 1995 Top Ten Managers and Subsequent Performance
T5-11
1995 Top Ten Managers and Subsequent Performance		 1994 Top Ten Managers and Subsequent Performance
T5-12
1994 Top Ten Managers and Subsequent Performance		 1993 Top Ten Managers and Subsequent Performance
T5-13
1993 Top Ten Managers and Subsequent Performance
  1992 Top Ten Managers and Subsequent Performance
T5-14
1992 Top Ten Managers and Subsequent Performance		        

 

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