Does investment skill exist and, if so, how valuable are track records in measuring it? These are perennial questions in the investment industry where in reality a track record of outperformance can be the result of sustained investment skill, or the result of blind luck.
Research papers and industry insights have consistently shown that track records are poor guides to the future performance of investment strategies. They offer little insight into the analysis of investment behaviour and are therefore imperfect in helping asset owners perform effective portfolio manager analysis. We strongly believe that looking beyond track records and working to understand the investment behaviour that drive track records can offer far more insight.
Our research used the Inalytics Peer Group Database, which contained over 215 long only equity portfolio and comprised around US$152bn of investment data by value. We focused our research on investigating how two key concepts – the Hit Rate and Win/Loss Ratio – can help inform how a portfolio manager generates alpha, and whether their track record can be relied upon as a useful indicator of skill.
Download the full study to learn more about how we go about identifying investment skill or contact us to learn more about how we analyse portfolios and decision making to improve the investment process and help select skilful portfolio managers.