Find a winning fund or a winning horse – which is easier?

A recent piece of research done for The Telegraph by Morningstar (you can find the original article here) found that the chances of selecting a consistently performing fund over a ten-year period was 1.4%. They point out that this replicates the findings from a Cass Business School study in 2013, which found that from 1998 to 2008, only 1% of funds beat the market.

In their words, this is equivalent to backing a 100/1 shot at the horses, a bet you would not expect to win!

If you read the Telegraph article, you will see that they give the names of the 19 funds that did perform, together with comments from an “expert” from Morningstar; the expert believes that some of the bond funds benefited from luck. Regular readers will know that the equity fund managers almost certainly benefited from luck as well. Some may be tempted to invest in the “winning” funds; we would exhort you not to! Many studies conclude that the chances of their repeating this performance are miniscule.

We are reminded of Nobel Prize winner, Paul Samuelson’s famous quote, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

He went on to say, “It is not easy to get rich in Las Vegas, at Churchill Downs (a horseracing track) or at the local Merrill Lynch office.”

It is sobering to note that when attempting to choose active fund managers, whether you are a do it yourself investor, a fund of funds manager or an adviser, the odds are so far against you that you are backing a no-hoper.