Skandia boss attacks anti-past performance stance of FSA comparative tables
Skandia's director of investments, Jim Roberts, has accused the FSA of being wrong that past performance is no guide to future returns.
Roberts made the statement at the Skandia Pathfinder Forum for intermediaries at the Queen Elizabeth II Conference Centre, where he challenged the validity of the FSA's interpretation of research on past performance, saying the findings did not justify the FSA's rigidly anti-past performance stance.
That stance is encapsulated in the upcoming launch of the FSA's comparative product tables, which will not contain past performance information. Skandia has sent a copy of its rebuttal to the FSA.
Since 1988, Roberts said, marketing material has had to contain a 'health warning' stating that past performance is not necessarily a guide to future performance.
But, Roberts said: 'There has recently been a subtle change in the way in which the new Financial Services Authority looks at past performance compared to its forerunners. Past performance is not necessarily a guide has become past performance is no guide to future performance.
'Let us be quite clear. Past performance is historical fact, which the FSA must not be allowed to suppress. The suppression of history is something I thought had gone out with Joseph Stalin. Past performance is crucially important information. It is evidence. It is evidence of how a fund manager works. It tells you about style, risk control, aberrance to fund briefs, adherence to benchmarks. Would a scientist ignore evidence? Would Inspector Morse, Sherlock Holmes or Hercule Poirot?'
He did warn, however, that past performance must not be taken in isolation without a view to factors such as volatility, different time frames or the strength of the fund management house.
Roberts went on to contest the research from Watson Wyatt, the FSA's own Economics and Financial Regulation Department, and Bacon and Woodrow, all of which the FSA used to formulate its position.
He said that the findings of all the group's did not support the FSA's stance on past performance.
One of the five key research papers, (Defining and Exploiting Investment Manager Skills by Watson Wyatt's Roger Urwin, January 1994), contained the lines: 'There is strong evidence of skill in some managers' performance,' and 'The impact of a highly skilled manager is financially very significant in the long term ' this means the search for skill is a very worthwhile cause.'
Roberts also said market rotation undermined the research, creating a pattern that does not indicate a lack of fund manager skill.
'You will expect some funds that have done well in one phase of the market to do less well in the next. Small companies have a good run and then large companies have a good run,' he said. 'It doesn't mean that fund management is random.'
Other issues that undermined the research included the number of fund manager changes, 190 in the last 12 months, according to Roberts. Fewer than 8% of fund managers have a 10-year track record on a fund, less than 50% have even a three-year track record.
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