Investment strategies mismatched with fund managers’ philosophies
Portfolio strategies used by equity fund managers in Australia do not always match their stated investment philosophies, new research by the Centre for International Finance and Regulation (CIFR) reveals.
CIFR chief executive, David Gallagher, said data covering 37 active funds over a 15-year period, showed that while mismatches were not necessarily intentional, underestimations in asset turnover and tracking errors could lead investors to expect lower transaction costs and a higher information ration than what was actually delivered.
The study, which compared information sourced from investment management questionnaires against the managers' own performance found that compliance with their self-declared number of stock holdings improved over time, but managers systematically underestimated maximum portfolio turnover rates and tracking errors.
"Overall, our research suggests that those who use the questionnaire responses should view self-declared limits on the number of stocks held, tracking error and asset turnover as relative rather than absolute indicators of a manager's investment process," he said.
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