Average return of your investment fund | the monkey and the expert

During my final year in college, I remember reading a book called “A Random Walk Down Wall Street” by Burton Malkiel. In the book Burton explains that a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts. Although it sounds exagerated, there’s is plenty of data showing that very few professional investors can beat the markets consistently over an extended period of time.

In a recently published white paper called “Spanish Fund’s Return. 2002-2012” IESE professor Pablo Fernández, Javier Aguirreamalloa and Pablo Linaresa proved this again. In the paper they have tracked 1,161 funds over the 10 year period 202-2012, with an average return of 2.7%, which is way below the IBEX35 index (7,86% anually) or  treasury bonds (4,3%) for the same period. So if we had a monkey throwing darts at the IBEX35 list, most likely we would have better returns than most of those funds and just for the price of peanuts to keep our fund manager happy. Interestingly, average inflation in this period was around 2,7% so at least people have not lost purchasing power.


investment funds performance

Monkey Business


Out of the 1,161 funds studied, only 37 (3% of total) had higher returns than the IBEX35, and only 178 (15% of total) had higher returns than treasury bonds for this 10 year period. This means that a mere 85% of the funds had lower returns than treasury bonds, although there is more risk holding stocks than treasury bonds. And to complete the picture, only 326 funds averaged returns over 3%, and 54 funds had negative results.

Many studies have concluded that asset allocation explains most of the return of a portfolio: in simpler words, it is more important to make correct decisions in which type of investment to invest (bonds, stocks, …), than to pick within the same asset class. There are many factors, type of product traded, timing, strategy, knowledge,… those are always key but make sure your fund’s manager knows them well before you end up paying more than peanuts for the service.

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