Bail out when fund managers win gongs
Are investors better off choosing superstar fund managers? University of Otago Business School accountancy and finance researcher Dr Eric Tan found this isn’t necessarily the case.
‘‘You might think that when a fund manager wins a performance award, the investment fund they manage would do even better.’’
But Tan said the winning funds enjoyed disproportionately large new money inflows, and this sharp increase in investment made the fund suddenly harder to manage.
Brian Gaynor, executive director of Milford Asset Management said he had never noticed a flood of money after an award and didn’t
The effect can last for as long as three years before bouncing back.
think investors paid much attention to them.
Gaynor said Tan’s research referred to Morningstar awards in the US which attracted considerable attention through media sources, including Bloomberg, Business Week, CNBC, Forbes, Reuters and the Wall Street Journal.
‘‘We don’t have those media outlets in New Zealand and that much coverage.
‘‘The local Morningstar awards are very low profile and attract little media attention,’’ Gaynor said.
Tan studied the US Fund Manager of the Year awards.
He found investors responded predictably to the superstar status by investing more heavily up to six months following the FMOY award.
However, award-winning managers on average underperformed by 3.08 per cent in the 12 months following the announcement of the FMOY award.
Tan also found award-winning managers extract higher compensation after receiving the award.
Tan said he was keen to see if these findings were similar in Australia and New Zealand investment funds.