The purpose of investing is to grow your portfolio... right? But how do you best do that - through hiring a fund manager or by putting in the effort with quality investment management software?
When deciding on your investment strategy, it’s sometimes hard to choose from the various options around. Do you pay the extra commission and hire a skilled fund manager, or do you choose to have more control over your portfolio and possibly gain higher returns with investment management software? Should you ignore both and simply invest in an index fund? I've had the same questions... which is why I put some thought into investigating just which path is a worthy choice for a value investor.
Stop Funding Your Fund Manager
Why people hire fund managers
There are a few factors at play here: time and skill. You either entrust your money to a fund manager because:
- You're short on time and don't foresee managing a portfolio yourself (or you might have the time, but are lazy to put it toward portfolio management), or
- You believe fund managers are the best option because of their supposed skill in navigating the stock market (which you may not have).
The historic performance of fund managers
As a means of analysis, let's perform the most basic check-up. Have the top fund management firms outperformed market indices? Surely a fund manager's most basic resposbility is to outperform the market... otherwise, what's the point?
So, if we analyse the performance of mutual funds from BlackRock, Vanguard Asset Management (UK and USA/EU), State Street Global Advisors and Carl Icahn’s actively managed mutual fund, we get some surprising results. The average annual return on a 3-year yield is 3.29%. That's seems fair as a standalone figure... I mean, it's on the up, at least.
The nasty surprise comes when we compare this with how stock indices performed in the same period. If we analyse the performance of the S&P 500, the FTSE 100 and the STOXX Euro 600, we find that an average annual return on a 3-year yield is 6.84%. That's more than double the return of fund managers! This while the expense of an investment in a stock index fund for $100,000 is around $314, and an astounding $1,173 for fund managers.
If this isn't enough to convince you that fund managers aren't performing... let's look at the fund managers who we know DID perform. There's a interesting case study of the 25 fund managers who have outperformed the market over the past 10 years, which shows that they achieved an average return of 7.9%. Not sounding too terrible? Well, tally it against a 5.8% average return from the FTSE All Share index during the same time period. Taking the additional fees that these fund managers charge into account, it's doubtful that the 2.1% higher return makes much difference to investing in a strong index fund. I, at least, expect more from my fund manager.
Invest in Investment Management Software
Investment management software cuts out the middle man by aiding you with stock screening, finding undervalued stocks, deep company valuation and comparison tools, and other stock picking functions. While you're likely to put more time and effort into your portfolio when using an investment management software, you're also guaranteed far more control over your portfolio, and better returns.
The historic performance of investment management software
As an example of investment management software and its performance, of course I'll be looking at STRIDE. This isn't a punt of product, but really to show you the general performance of quality investment software - I was just fortunate enough to have access to all of STRIDE's historic performance details.
These screenshots below are live model portfolios (which each opened on 1 November 2012 with $100,000) using STRIDE's value investment software in each of the regions highlighted (including the USA, UK and global markets). The returns represent total shareholder return (including dividends), and are simply following the STRIDE 3D Value Investing rules. You can see the live STRIDE performance page here.
STRIDE is beating global markets by an average of 91.8%.
STRIDE is beating EU markets by an average of 94.5%.
In Asian markets, STRIDE is underperforming at the moment at an average of -8.96%. This is due to one market, the Nikkei, which has outperformed all indexes globally over the same period. STRIDE is still handily beating the ASX (Ozzie) and HSI (Hang Seng in Kong Kong).
STRIDE is beating UK markets by an average of 11.88%.
STRIDE is beating US markets by an average of 13.64%.
Need I say more? A quality investment management software clearly outweighs a fund manager's returns on your investment. If you'd like to know more about STRIDE, book a free live demo with their CEO now.