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

Yes, this is true that the quality and risk appetite of fund manager affect fund performance. The funds require active involvement of fund managers as fund managers tries to outperform the market by focusing on the performance of specific stocks within their portfolio. They do detail analysis of the stocks before investment and lot of portfolio churning as their primary objective is to take advantage of irregularities and mispricing in the financial market. The personal judgments and experiences of fund managers are very important for the performance of fund as this is not free from personal biases.

The fund requires day-to-day monitoring of the performance of fund as the fund managers try to generate greater returns but the selection of stocks are based on the fund manager quality and risk appetite. Even after stock selection the period of holding for a stock again depends on the judgment of fund manager and affects the fund performance. There are various advance algorithms that are used in portfolio allocation and management with lower cost of portfolio management but all these things are depends on fund manager’s decision which is directly correlated with the fund manager quality and risk appetite that how efficiently they are using the technology for better performance of fund at reduced level of risk. If they have lower appetite for risk, they will avoid stocks with high volatility and therefore they will miss the chance of higher returns in favorable market conditions. The quality of selection of stock is also important otherwise fund will perform badly in unfavorable market conditions.