Most people manage to hide from their own failure, so pity the poor fund manager, whose every wild blast is measured in unforgiving performance numbers. Between 70 and 80 per cent of fund managers have underperformed a passive index over the past five years, a ratio known as the slaughtered three quarters.
Fund managers are exposed by two things — their performance is quantified on a daily basis and there is a non-human alternative to compare them against. This is not the case with a politician or a policeman. Computers are getting better than us at an awful lot of things; the choice between human or computerised investment has implications well beyond the financial profession.
But before we write active managers off entirely, what about the successful 20 per cent? When searching for a good active manager you need to know the types of creature you’re dealing with.
