Hi Guys,
I'm currently rediscovering an excellent lecture series from The Great Courses extensive teaching lineup. It is titled "The Hidden Factor: Why Thinking Differently is Your Greatest Asset". The lecturer is Professor Scott E. Page. If history is any indicator, I'll learn a little and forget a lot. I'll also misinterpret some.
One of Page's recurring themes is that group diversity yields better outcomes than even a smart, dedicated individual acting alone. The wisdom of the crowd generates superior results when that crowd is properly composed of a diversified team. This diversified team must be constructed from members who have different backgrounds, education, and experiences. These days, Nobel prize winners are teams, not individuals.
We know that low management costs, infrequent trading, and a longer time horizon statistically improves investment rewards. We know that women are better investors than men. So, why not improve the odds of selecting a winning actively managed mutual fund by examining and selecting a fund that most satisfies a leadership diversification criterion? Does selection of such a fund management improve the likelihood of enhanced fund returns performance?
These issues have been examined for decades. The results are somewhat mixed, but the most predominant conclusion is that fund management teams do indeed outperform individual star managers. Exceptions do exist. That's always the case when emotions enter the decision process, and emotions are always integrated into investment decision making.
One recently published summary paper is titled "1+1=2? Evidence from Solo- and Team- Managed Mutual Funds". The authors (yet another team) are Yanfei Sun and Jitka Hilliard from Auburn University. The presentation is data loaded and rather dry. Here is part of the abstract: "....we find that team-managed funds have higher abnormal returns than the solo-managed funds. This superior performance comes mainly from the funds with three- and four-managers and funds with investment strategy categorized as “Growth & Equity Income”".
These studies yield yet another criterion that you might add to your list to help when selecting an actively managed mutual fund. The percentage of actively managed funds that beat an equivalent Index product is small (in the 10% range over long timeframes), so anything that improves those odds should be considered for the mix. A diversified management team would be composed of members from different parts of our Country and even the world, with different education disciplines, with a wide age range, and would include both men and women. I'm sure other factors should be considered in the team formation criteria. Please add to it.
I hope this contributes to your fund management selection criteria and, most significantly, to your investment success.
Best Regards
