Retail investors may be deluding themselves when it comes to the way they choose funds in which to p...
Retail investors may be deluding themselves when it comes to the way they choose funds in which to place their money, according to research commissioned by Abbey National.
Abbey has found that 38% of retail investors rate the track record of individual fund managers as the most important factor in deciding where to invest.
Rated second was cost, which 17% said was the most important factor when comparing funds.
Actual past performance only drew 16% of the votes for the most important factor.
Abbey's research also suggests that retail investors are increasingly availing themselves of online data to check the performance of the star managers that they follow.
However, relying on people to outperform the market is false economy, according to Abbey National, basing its conclusion on the study of two sets of four years of performance data.
It says that 85% of all cases studied, it was the investment style rather than the manager's capability that produced returns on investment.
An example of this is the relative performance of growth versus value fund managers in the four years to September 2002, says Abbey.
Value fund managers were castigated in the 1990s for failing to match gains made by growth fund managers, but when the market correction came after 2000 the opposite occurred - value fund mangers have clearly been outperformed their growth peers during the bear market.
Abbey adds fuel to the fire that is the debate between active versus passive management too, saying that 60% of actively managed UK funds "are hugging the FTSE All Share index".
"The research measured the style bias of 518 funds in the Lipper UK Unit Trust Universe against the style bias of the FTSE All Share index over a four-year period ending September 2002," it says.
"Based on this comparison over half the funds fail to deviate significantly from the style bias of the FTSE All Share index."
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