New data published by FTfm has shown that investment funds which are managed by banks and insurance companies generally underperform those operated by independent asset managers.
The data, compiled by Lipper, was part of an extensive research project looking at the returns provided by different types of investment managers in Europe. It is reported in FTfm here.
A similar study conducted ten years ago, by Melissa Frye of the University of Central Florida, found similar results and also concluded that better performance was being achieved by non-bank investment funds.
An important point to note with the findings of both studies is that independent asset managers tend to take greater levels of risk to achieve their better performance figures. Understanding the relationship between risk and reward is essential when making an informed decision about a suitable investment strategy.
When your adviser is recommending a particular investment fund for your portfolio, they should be looking at multiple factors during their fund selection process. Reviewing the performance of the fund in isolation is likely to see you exposed to an unsuitable fund, as pure performance analysis is a very poor measure of fund suitability.
Of course fund selection is only a small part of making a suitable investment recommendation. In fact, it is one of the final stages of the investment advice process. Any adviser who leaps straight to recommending a fund is doing you a disservice.
This research from FTfm and Lipper should certainly give food for thought for any investor who is relying on bank-run funds within their portfolio.
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