Deep-rooted and fundamental problems with active fund management

In today’s Press & Journal, Carbon’s Investment Director, Barry O’Neill highlights the perils of active fund management. In this illuminating article, Barry cites some revealing research which goes some way to explaining why active fund management is so risky and usually unsustainable. The main thrust of his argument is based on the fact that active fund management is very susceptible to the basic frailties of human nature.

Certainly the research backs up this theory when you see the proportion of fund managers who can consistently repeat their successes year after year. In fact, recent research on US fund managers conducted over 3 years from 2012 revealed that less than 17% of fund managers who finished in the top half in 2012 maintained their position the following year. When comparing the same statistics over longer periods the consistency reduces even further.

Barry points out that most people are investing for much longer period than 3 years, so the chances of active fund management delivering market-beating performance are miniscule.

Barry’s advice is to select the asset classes to which you want exposure, such as UK, international, or emerging market bonds or equities, and to regularly review and re-balance your exposure while minimising costs.

It is another interesting article which highlights yet another important issue you must consider when selecting the right investment approach.

You can read Barry’s full article here, or by clicking on the image below.

If you would like to discuss your financial planning options, please contact us with any questions you might have. You can do this by calling our head office on 0131 220 0000, or by emailing us at enquiries@carbonfinancial.co.uk. or you can also follow us on Facebook, Twitter or LinkedIn.

You can view Barry O’Neill’s profile here.