Intech accounts for long-gone managers

TheIntech Financial Servicesresearch group has rejigged its benchmarks for investment performance to reflect the litany of fund managers who disappear from the radar screen every year.

The new measure, the Investor Index, will replace the Median Manager as the research house’s main yardstick for measuring manager performance in Australian and international equities, listed property and Australian and international bonds.

Intech executive director Brett Elvish says the new measure removes the distortion created within surveys of manager performance when managers drop out of surveys over time.

According to Elvish, some 40 managers have disappeared in the Australian equities asset class alone over the past 10 years.

As a result, the performance of the median manager in Intech’s research was inflated, as it did not include the results of managers who had disappeared, and who in most cases were worse performing managers.

In the ten year’s to September this year, the median Australian equities manager outperformed the S&P / ASX 200 index by 2.6 per cent per annum according to Intech.

However, once managers who had dropped out of the sector over the 10 year period were taken into account, the average manager only outperformed the index by 1.5 per cent.

“I think we are making our expectations a little more realistic,” Elvish says.

“I think it is very hard for investment managers in terms of having to be measured against the median when that median is inflated by about 1 per cent by survivorship bias,” Elvish.

Elvish says the new measure more accurately reflects the opportunity set of managers available to investors at any particular point in time.

“It provides a better benchmark in terms of meaningful performance and it is also a more realistic benchmark in terms of being investable. It also allows investors to more closely determine if their managers are good, bad or indifferent,” he says.