Evidence “unequivocally” shows that professional fund managers have “no predictive ability”, according to Stockspot chief executive officer Chris Brycki.
In a blog post published on Wednesday, Mr Brycki backed up his claim with the findings of S&P’s ongoing SPIVA study as well as Stockspot’s own research.
“It amazes me that the finance industry is still debating the clairvoyance of professional fund managers when it comes to predicting future share prices,” he said.
S&P has found that less than 20 per cent of fund managers outperform the market over at least five years, or less than 10 per cent when factoring in taxes.
Similarly, Stockspot has determined that fewer than 10 per cent of Australian and global funds have managed to beat the index over a period of five years.
“But here’s the rub: predictions in the financial world are rarely held accountable. In most fields, if someone consistently makes inaccurate predictions, they might find themselves with dwindling credibility and less airtime,” Mr Brycki said.
“However, in the financial markets, it seems to work quite the opposite way. Those who are willing to make predictions, regardless of their past accuracy, are continually granted a platform to deliver their supposed foresight. The accuracy of past predictions appears to have little bearing on the faith we place in expert forecasts.”
Subsequently, Mr Brycki examined how 10 forecasts made by fund managers in December last year have fared over the past 12 months.
Five predictions made by Ellerston Capital, Firetrail Investments, Sage Capital, Nikko Asset Management and Antipodes Partners demonstrated strong performance.
Meanwhile, five other predictions from Tribeca Investment Partners, Lanyon Asset Management, Wilson Asset Management, Regal Funds Management and Plato Investment Management were all in the red.
Overall, Mr Brycki pointed out that only two recommendations managed to surpass the strategy of investing in an ETF which tracks the top 100 companies globally.
“If you had followed all 10 of these recommendations at the beginning of the year, evenly distributing your investments across each of them, your portfolio would have trailed behind both the Australian and global stock markets,” he said.
“This not only would have resulted in lower returns but also likely led to sleepless nights filled with anxiety as you awaited earnings results from your concentrated positions.”
In conclusion, the Stockspot CEO said that the evidence “overwhelmingly supports” the idea that predictions by “supposed experts” are no more reliable than a simple coin toss.
“While they may be entertaining and intriguing to read, these predictions offer little value in terms of generating actual returns. For investors, it usually makes more sense to invest in an index ETF rather than rely on the forecasts of fund managers,” Mr Brycki said.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.