The STRIDE Blog

Why 9 of 10 Fund Managers Aren't Worth Their Salt

stride-why-9-of-10-fund-managers-arent-worth-their-salt-featured.jpgFrustrated with your hedge fund manager's performance? Looking at the data, I'd be too. It's time to leave boring investing behind and chase after real value that offers massive long-term growth.

Here are some fun facts about fund managers in 2016 from the New York Post:

  • Only 10% of hedge funds are worth their fees.
  • That means that 9 out of 10 hedge funds are a waste of time and money.
  • The S&P 500 is growing 3% points faster on average.
  • Some of the biggest detractors have been big pension funds.

Say what? Those are some scary realisations for investors, but not as worrying as it needs to be for hedge fund managers. That 3% performance gap between hedge funds and low cost index funds is significant because hedge funds typically charge a 2 percent management fee and 20% of profits... which means they'll be needing a serious re-think of their fee structures if they want to keep investors interested.

Moving Away From Boring Investing Tactics

These realisations bring some freedom. Value investors who want to leave boring investing behind, and chase real value that offers massive long-term growth, now can. Note that I didn't say "growth potential". A good value investor shouldn't invest in long-term growth potential - a good value investor simply invests in long-term growth.

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Why Fund Managers Aren't Worth Their Salt

Underperformance is the word of the day when we're talking about fund managers. Especially in recent years, they just aren't delivering. Like we said before, on average, 9 out of 10 hedge funds aren't profitable, and mostly because of their fee structures. 

While management fees might seem to be low when you have a fund manager advising you, their commission is what eats away at your portfolio. Management fees can get as low as 1% and rarely go above 5%. But, their commissions can go as high as 30% of profits, and that is where you begin to detract from your real growth. This in comparison to a stock picking and portfolio management tool's fees, which allows you to self manage your portfolio, is rather dismal. For instance, the average fee for investing in a stock index is about 0.3%, and their average returns are 6.8%. STRIDE's fees are about 0.5%, and its average returns are 17.7%. Fund managers simply aren't competing well... in fact, at our last in-house analysis, their average fees were about 1.2%, while their return was a shockingly low 3.3%. 

Nevertheless, it's not all in the fees. I mean, if there was any real growth then the remaining 70% of your portfolio's profits would see it realised. But, on average, hedge funds simply aren't making great long-term value picks for their clients. 

How Value Investors Need to Adjust Strategies

If we can't find a fund manager to effeciently grow our investments, it's time to take charge of our own portfolios. That's why we're suggesting value investors move to an independent strategy, where they look for long-term value and not get rich quick schemes. Yes, it takes more commitment and time... but isn't it worth it? If you want to be a succesful investor, you've got to know that getting rich quick isn't often synonymous with that. It's about being a contrarian investor - looking at which stocks have a guaranteed growth over the next several years, and not a high-risk hope or potential of growing in the following financial year or two. 

If you'd like to take charge of your investing portfolio and make your growth focused journey more exciting, then enjoy a free live demo of STRIDE's stock screening software below.

Enjoy a free live STRIDE demo

Topics: Commentary

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