NYU Stern Study Finds Good Fund Managers Time Investment Strategies to Economy’s Health

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posted: 16 DAYS AGO

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As of the end of 2008, $9.6 trillion was invested with investment professionals in the US. How can investors know their money is well managed? Three NYU Stern professors recommend picking money managers who shift their investment strategies over the course of the business cycle.

In a new, first-of-its-kind study, NYU Stern Finance Professors Marcin Kacperczyk and Stijn Van Nieuwerburgh, and Economics Professor Laura Veldkamp, identified the top 25 percent of actively managed equity mutual funds with respect to their stock-picking ability in expansionary periods and found that the same group has market-timing ability in recessions. They find that this group outperforms the other funds, in risk-adjusted terms and after expenses, and, in short, identified the most highly skilled investment managers. These managers shift strategy over the business cycle by:

Investing based on macroeconomic information in recessionary times
Investing based on microeconomic (stock-specific) information in expansionary times

Their research also reveals that these managers are likely to run smaller, more actively managed funds, hold MBA degrees, and, later in their careers, move to a hedge fund.

“The current recession has left many investors with lost confidence in financial markets and, more narrowly, in the people managing their money,” said Professor Kacperczyk. “Given that we are currently in a recession, our work suggests that individuals should be looking for a different type of investment manager—one that invests based on macro information.”

To read the full paper, visit: http://pages.stern.nyu.edu/~sternfin/mkacperc/public_html/attention.pdf

To speak with Professor Kacperczyk, contact him directly at 212-998-0924, mkacperc@stern.nyu.edu; or contact Rika Nazem, NYU Stern’s Office of Public Affairs, 212-998-0678, rnazem@stern.nyu.edu.