Managers poor at selling stocks, says analyst

Most fund managers are poor at selling stocks out of their portfolios, according to Inalytics, a firm that specialises in examining managers’ stock decisions.

According to the firm, which runs a behavioural finance service called Behavioural Performance Strategies, while most managers are good at picking stocks, in most cases the companies they sell continue to rise in share price terms.

Launched in 1998 by Rick Di Mascio, its chief executive and founder, Inalytics established BPS 12 months ago as a service to both the fund management industry and blue-chip pension funds.

Focusing only on equity and hedge funds, it analyses every trade and every position held by fund managers to determine their skills and how these translate into alpha. So far the group has 16 clients: eight fund management groups and eight pension funds.

Di Mascio says: “At present we have more than 140 separate portfolios in our database. For each portfolio up to 50 million calculations are involved, so it is a heavy data processing exercise.

“The aim is to show the managers where they are going wrong so they can sharpen up their process going forwards.”

As well as being poor at selling stocks, Di Mascio says while most managers do well when they have a positive view on a stock or sector, they are not as strong at identifying those areas that will perform badly.

“This raises the issue of whether long-only managers have the correct skills to become hedge fund managers,” he notes.

“We launched BPS because at present it is almost impossible to tell whether the returns made by active managers are by luck or judgement. Track records alone tell you nothing about a fund manager.”