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(December-2002) InTech kills off survivorship bias
Intech Financial Services has introduced a new performance measure to reflect the many fund managers who disappear from its radar screen each year.
Called the Investor Index, it will replace the Median Manager as InTech’s 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 survivorship bias, or the distortion created within surveys of manager performance when managers drop out of surveys over time.
He notes that 40 managers have disappeared from the Australian equities asset class alone over the past 10 years for various reasons including takeovers, poor performing products being closed or closure of business.
Because of the survivorship bias, performance figures for the median manager have been inflated. InTech’s figures show that in the 10 years to end-September 2002, the median Australian equities manager outperformed the S&P/ASX 200 index by 2.6 per cent a year. But when the managers who dropped out over this period are taken into account, the average manager only outperformed the index by 1.5 per cent.
Meanwhile, InTech has also released a new survey called the InTech Industry Sector Survey which, it says, is the first to provide manager information on the Global Industry Classification Standards (GICS) industry sector and market capitalisation allocations for Australian share portfolios. It will also include GICS industry sector and regional allocations for international share portfolios.
Elvish says the new survey gives context to analysis of fund managers and insight into why their decisions did or did not work out.
For example, some pundits believe that the days of Australian share managers adding value are over, but the new survey shows that the main reason why the median Australian share manager under-performed over the past year is because, on average, managers have been significantly underweight in listed property trusts.
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