Does investment skill exist? If so, how can it be measured?
Traditionally, market participants and commentators have hunted for evidence of investment skill in industry wide databases of track records. This flawed approach of relying on track records to separate luck from skill has proved inconclusive and cast further doubt.
Determining luck from skill
Proving the existence of investment skill, Inalytics uses analytic tools to examine and interrogate transaction data, combined with human insight, to help determine whether alpha has been generated through luck or skill. We use sophisticated tools and methods in much the same way as elite athletes use them to examine and improve performance.
We started by using Inalytics Peer Group database of some 389 equity portfolios, part of a broader database which comprises over 100 million institutional investor decisions.
Here, we look to understand investment skill by analysing the investment process, decision making and strategy alongside performance, while at the same time avoiding reliance on historic track records.
Download the full study below to learn more about how we go about identifying investment skill.
Contact us to learn more about how we analyse portfolios and decision making to improve the investment process and help select skilful portfolio managers.