Research Paper 04: Separating Luck from Skill

Separating luck from skill, in this study we provide evidence that even fund managers with no skill in stock picking have still been able to outperform the standard Australian equity benchmark.

Analysing the Australian equity benchmark

An industry in very good health – whenever we have undertaken search exercises on domestic Australian Equity Managers, or monitored an Australian client’s Domestic Managers, we regularly found that the vast majority have outperformed. Needless to say this has made us curious to see if they really are as good as they appear, if there are lessons we could learn about how asset owners select managers in Australia, and finally whether this really is the Holy Grail and the vindication of investment boutiques’ approach that the rest of the world is seeking.

Do superior track records equate to investment skill?

The superior outperformance of Australian equity managers has led to a belief that their investment skill is better compared to their global peers. Seeking to understand investment behaviour, we ask whether this is really the case using Inalytics Peer Group database of institutional investor decisions. We examine whether superior track records equate to investment skill to understand what makes a skilful portfolio manager.

Separating luck from skill amongst outperforming managers

Using the Inalytics Peer Group database, in this study we analysed 62 Australian equity portfolios to determine whether:

1. Outperformance and success come down to investment skill or luck

2. What lessons can be learnt from identifying investment skill to help improve due diligence in the selection process by asset owners

Contact us for further information about how Inalytics analyse portfolios and decision making to improve the investment process and help select skilful portfolio managers.