Active fund managers are “effectively flying blind” by relying on backwards looking performance data so it comes as no surprise they are struggling to outperform net of fees and prove their worth against cheaper index funds, says Essentia Analytics founder and CEO Clare Flynn Levy.
In the latest Portfolio Adviser video interview Levy says her consultancy has seen a 30% spike in business since the Covid crisis hit. Volatile trading in 2020 aside she says more and more large fund houses have been waking up to the fact that active management is a “scary place to be”.
Elsewhere Levy breaks down the most common destructive behaviours that trip fund managers up, including buying and holding onto “winners” past their sell-by date.
“In asset management we’re told long-term is the way to make money in the market but there is long term and then there’s long term,” Levy argues.
“If you’ve owned something for a really long time and it’s done really well, you start to know the management team, you start to feel like you really understand it but unfortunately you start to ignore the cracks when they begin to form. And if you don’t notice until it’s too late you may well have given back all the alpha you generated in the first place.”
Watch the video above for more.
