Home / Funds Management / Age begets wisdom in funds management: Study

Age begets wisdom in funds management: Study

Funds Management

Chalk one up for the old guys: a new study has found that, where funds management is concerned, age is correlated with both performance and persistence.

“The most consistent result from our estimates of the cross-sectional relationship between manager characteristics and manager skill… are that accumulated wisdom, however this is proxied, has a positive relationship with manager skill: the longer the manager’s tenure, the more experienced the manager is and the older the manager, the better the performance, other things equal,” says the study, titled ‘Manager characteristics: Predicting fund performance’.

The study, published in the International Review of Financial Analysis, found that that performance persistence is also most evident among male managers, non-CFA managers, quant managers, managers with high SAT scores (which are used for college admission), and managers that have managed their fund for a long period of time. Interestingly, for those concerned about key man risk, “the larger the fund management team, other things equal, the poorer the performance.”

However, “there is evidence to suggest… that long experience over short experience is a particularly important characteristic and explains much of the findings on persistence around gender and the CFA designation.”

In comments reported by Bloomberg, one of the researchers, Professor Andrew Clare (photo at top), attributed the CFA result to the fact that older, and so more experienced managers, are less likely to have obtained a CFA, and that it essentially acts as a proxy for inexperience (having a PhD apparently also detracts performance from the fund).  

“We see that among both long experience managers and separately among short experience managers, there is no significant difference between CFA and non-CFA manager in one-month ahead performance,” the report says. “However, among CFA managers and non-CFA managers separately, long experience managers go on to significantly outperform short experience managers in both cases… Again, the results suggest that it is experience rather than the CFA designation that plays an important role in the previous persistence findings.”

The study examined Morningstar data on more than 6000 US equity mutual fund managers and tracked them even when they switched funds, creating a data set of 16,207 manager histories – likely representing the first research to do so.

“We find that more experienced fund managers tend to run portfolios that have: lower exposure to the market, size and momentum risk factors; higher exposure to the value risk factor; and no significant exposure to idiosyncratic risks,” the report says. “We also find that when a manager has a stake in a fund they tend to have a lower exposure to all of these risk factors relative to managers without a stake in their fund.”

Print Article

Why taming the inflation tiger will be harder than the 1970s

Inflation is making a latter day comeback, and a financial system “sanitized by 15 years of free money” is totally unprepared. It’s time, once again, for tough medicine. Inflation hasn’t been this high in 40 years, but investors have become convinced that central banks can still tamp it down it with relative ease – a…

Lachlan Maddock | 27th May 2022 | More
Bragg offers a super manifesto (from opposition)

One of the Coalition’s few surviving  “super soldiers”, Andrew Bragg has called on his party to go further down the route of “flexibilising” super – if not abolishing it completely. Senator Andrew Bragg finds himself in a curious position following Labor’s election win. He’s one of the few super partisans to survive the teal clean…

Lachlan Maddock | 27th May 2022 | More
Appen left at the altar. Market heads lower. Good week continues for US markets.

Appen left at the altar A bizarre blink-and-you-missed takeover approach came and seemingly went for one of the local market’s tech leaders Appen, which develops the datasets for machine learning and artificial intelligence. Canadian company Telus International sprang a $9.50 a share bid on the company, which said it would talk to Telus to try to…

Drew Meredith | 27th May 2022 | More
News and OneVue go live with brightday
Alec Law | 11th Jan 2015 | More
Perrignon off to HK with Credit Suisse
Alec Law | 22nd Dec 2013 | More
Sports betting as a new asset class
Alec Law | 3rd Jul 2016 | More
BlackRock ahead of consensus with bullish view
Alec Law | 14th Jan 2017 | More
Statewide seeds bespoke Apostle fund
Lachlan Maddock | 23rd Mar 2022 | More
UniSuper’s VC foray a sign of things to come
Lachlan Maddock | 25th Mar 2022 | More