Date
21 January 2017
Poor fund performance is perhaps the biggest challenge to the fund  management industry. Photo: Reuters
Poor fund performance is perhaps the biggest challenge to the fund management industry. Photo: Reuters

The harsh reality about fund management pros

In 2014, only 14 percent of active equity funds managed to beat the S&P 500.

In the hedge fund industry that caters to much bigger and sophisticated investors, the average return between 2011 and 2015 fell to zero percent compared with an average annual yield of 13 percent between 2001 and 2010.

These grim figures were highlighted in a CLSA investors forum by Michael Johannes, a business professor from the Columbia Business School.

Poor investing results, along with exchange-traded funds, have been driving down fund management fees, Johannes said.

Where there has never been a lack of volatility, like the 40 percent fall in the yen between 2013 and 2015, or the rally in bond markets, or the collapse in oil prices from US$110 to US$27 between 2014 and 2015, most professionals failed to profit from these swings.

Some big moves happened “too abruptly and unpredictably” for funds to have been able to capture them, Johannes said, and for others, fund managers simply failed miserably to exploit them.

As funds have little to show for their work, looking into the future, rivalry from disruptive technology such as automated advisory services could further drive down their charges and bargaining power.

– Contact us at [email protected]

RT/RA

EJ Insight writer

EJI Weekly Newsletter