The Global Equity Manager Performance Report 2018 by Cambridge Associates, the global investment firm, suggests investors need to adopt a long-term view to get the best from active fund managers. A successful investing strategy requires very careful consideration before changing managers, even if that fund manager is suffering a period of poor performance.
The research shows that persistence in active fund manager performance is rare, and movement between performance quintiles in the short-term is fairly common. 42% of global equity fund managers in the bottom quintile for performance in the five-year period 2009-2013 went on to reach the top two quintiles in the subsequent five-year period 2014-2018 (see graph).
Cambridge Associates says that a key factor of successful investing is keeping the long-term goals in focus when evaluating fund management and not acting hastily during short-term periods of underperformance and changing active fund managers. Doing so means investors risk missing out on future rebounds in performance.
Sean Duffin, Investment Director at Cambridge Associates, says: “Winning fund managers are unlikely to be winners all the time so it’s crucial that investors don’t unnecessarily chop and change too quickly. A good manager will rebound and it’s important to be there when that happens.”
“It’s important for investors to keep in mind that long-term success in fund management is not dependent on consistent short-term success.”
“An underperforming sector, or asset class, may drag down a manager’s performance in the short-term but this alone may not be enough to justify making a change. It is important that an investor understands the root cause of a manager’s performance first.”