Research released by Inalytics, the specialist manager evaluation firm, reveals that fund managers have skill.
Inalytics has found through its research that skillful Managers have three characteristics; they get more than half their decisions right, are able to run their winners and finally cut their losers. Inalytics has recently published research that shows the second of these characteristics is worth 5% per annum.
The research was carried out on 760 equity portfolios from around the world and presents empirical evidence on the distribution of Hit Rates. It demonstrates how significant winners are to generating performance, and that those with this skill significantly outperform those that do not. A ‘winning’ stock is defined as a stock owned in the past, that added value, and then continued to be held and added value once again.
Commenting on the results of the research, Rick Di Mascio, CEO and founder of Inalytics, says: “The fund management industry often talks about its ability to run winners but we know from previous research that Managers tend to sell their stocks too early. As far as we know, this is the first time anyone has established evidence to support the proposition that some Managers are skillful.”
This research is the first in a series of papers Inalytics is undertaking on the nature of skill and follows on from the firm’s previous research papers into the behavioural biases exhibited by stock-pickers.