Everybody knows that over time, most active fund managers fail to beat the returns of the broader stock market. Well, when it comes to multiasset mutual funds—which attempt to zoom in and out of asset classes with deft timing—managers’ performance is especially bad.
Few managers of multiasset funds have any meaningful market-timing skill, according to research from academics at City University London’s Cass Business School and University College Cork in Ireland.
The study shows the lack of ability is particularly acute where it is needed most: in timing the stock market, where returns are more volatile but generally higher than in bonds. It is a worrying finding given that the only real reason to buy such funds is the asset-changing ability of the managers. Correct choice of asset allocation is said to account for 90% of returns.
“The managers were not very good at getting out of other asset classes and into equities,” says the lead researcher on the project, Prof. Andrew Clare, a director at the Center for Asset Management Research at Cass.
How bad is it?
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