Stock-picking funds: no picnic

February 21, 2012

It’s hard to pick the best-performing fund management firms, even if you work in the fund industry yourself.

The same is true for stock-pickers working in banks and insurance companies, according to research by Aneel Keswani from London’s Cass Business School and David Stolin from Toulouse Business School — those analysts can’t pick winners in the sectors they work in.

Keswani and Stolin examined every trade over $200,000 made in the U.S. stock market between 1980 and 2009 and failed to find any strong evidence of superior stock selection by money managers in their own industries.

Kewswani says in a statement accompanying the research, published this week:

We would expect investors with first-hand experience in the same industry as their investments to reap the rewards from being well-informed about its future profitability and the specific firms that are likely to outperform going forward — but our study suggests this is simply not the case.

Keswani adds:

When we look at entire financial institutions, there is no evidence of investment ability either at the individual stock, or the industry level, despite the fact these institutions are investing in their own backyard.



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