Question

A portfolio manager claims that the mutual fund he managed obtained a 10%, 6% and 8% return in the past three years, while the market return was only 8%, 4.8%, and 6.4% in the past three years. Based on this information, do you believe this manager is good at picking stocks? If not, what other information do you need?

Answer 1

It looks that according to the given information the managers has outperformed the markets in each of the following three years by certain significant margin but there is inadequacy of information so I would look to get detail about various other spectrums of active management of funds like-

A. Whether the return is time weighted or it is dollar weighted

B. Overall amount of assets under management

C. Types of stocks and duration of the Investment.

D. Volatility and standard deviations in market in the past years along with the macro trends of the market should also be checked into.