Rene Levesque By: Rene Levesque, Founder, Mountjoy Capital
"Past Performance Is No Guarantee Of Future Results" The studies are well documented on the fact that manager selection based on trailing performance metrics is a losing proposition. Chasing return profiles ultimately results in disappointments for the investor. New research now suggests a mean-reversion theory: outperforming and underperforming fund managers across the world showed the idea of mean reversion to be factually correct, suggesting that strong periods of outperformance can be followed by less attractive results, and that frequently strong periods of underperformance can be followed by improved returns.
Qualitative versus Quantitative
Quantitative tools do in fact help in building a case to justify manager selection decisions with evidence of hard data under the scrutiny of the investment committee members. Quote: "A judicious man uses statistics, not to get knowledge, but to save himself from having ignorance foisted upon him." (Thomas Carlyle) The process has evolved into a culture that imposes quantitative filters on a discipline better referred to as an art rather than a science. Plainly, the justification process has somehow drifted as the core of the evaluation and decision-making process; while the two being two very distinct activities.
The problem is acutely applicable in the evaluation and selection of abs......................
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