Question

Do fund manager quality and risk appetite affect fund performance? Please provide a detailed answer, minimum 250 words and cite any sources. Thank you.

Answer 1

The purpose of any fund manager is to invest the money of the shareholders or their clients into the market which would be the mix or any one out of stock market, bonds (debt) market or money market. This is obvious that the different strategies has different kind of risks within it. That risk could be in investment strategies or with the specific kind of securities. But the primary kind of risk considered as the risk associated with the fund, which always mentioned while entering into trading of such funds. Hence, choosing the funds also belong to the quality and behaviour of the fund manager, which conciously and subconciously impact the investment and fund performance.

Let we start with one of the study based in US, to keep a check on the experience and quality of the fund manager which could have impact on the fund performance. This is true that a well experienced and who more sound the knowledge of market as compared to the one who either has less experience or less knowledgable about the market, will have impact on the performance of the fund.

Few studies has been done to provide justification to the same. One of the study found out that the stock picking talent of the fund managers is the very important indicator of the quality of the manager and the performance of the fund. The strong persistance of the fund manager towards the analysis, observations and tracking the fund is the major indicator of the talent and quality of the managers of each and every type of fund managers. It has also seen that the replacement of the fund manager come up with the different results.  It could be either portfolio wise or it could be performance wise, which justifies that diifferent managers have different kind of risk appetite and hence come up with a different set of funds for the same client. Such studies was to track the behavioural issues belongs to the managers while decision making specifically when they deal with the market.

Referance links:

http://www.cirano.qc.ca/realisations/grandes_conferences/risques_financiers/5-12-03/wermers.pdf

http://www.mfdf.org/images/uploads/resources_files/Schwartz-Smith_PCRM_03-11.pdf