A:

Many fund managers, whether they manage a mutual fund, trust fund, pension or hedge fund, have access to resources that the "average Joe" investor does not, but the type and quality of information generally remains the same for all investors.

The information that managers use comes from publicly available information in the form of news releases, annual reports and filings with pertinent exchanges. Fund managers will most likely have a team of financial analysts using the latest software to analyze specific firms, markets and economic variables, who will make recommendations and forecasts on future prices and market trends.

Even though these fund managers have access to all of these resources, the conclusions they come to about any particular security or market are potentially no better than what a personal investor can do with a TV remote in one hand and a mouse in the other. The only difference between a fund manager and an individual investor is that the fund manager is highly trained and must adhere to a set of ethical standards.

Fund managers and most analysts go through a formal training process, which will most likely include a CFA designation issued by the CFA Institute. The CFA program involves three rigorous levels of standardized testing, but in order to enroll in the CFA program you must hold, at a minimum, a recognized university degree. Also, to retain a CFA designation, the holder must adhere to the Code of Ethics and Standards of Professional Conduct, or else they may be suspended or expelled from the CFA society. In addition to their education and experience, fund managers will also have a thorough understanding of macroeconomics, international trade and behavioral finance, to name a few. Although it is not necessary to hold a CFA to be a fund manager, it is encouraged.

Although a fund manager's experience and education may provide him or her with an edge, a fund manager's actions may not be as transparent as they should be. The manager may make investments that are contrary to the best interests of the investors of that particular fund. For example, a pension fund manager may leverage the fund to purchase a security (this kind of strategy is illegal is most instances), but the investor will not know the fund manager is doing this. In this scenario, the possibility of losses is greater than if the manager took a non-leveraged position. (To learn more, read Understanding Dishonest Broker Tactics.)

Although fund managers are highly trained professionals, they still use the same publicly available information that all investors use, and the conclusions they come to are potentially no better than those achieved by any conscientious investor.

For further reading on investment fund managers, check out Should You Follow Your Fund Manager? and

Morningstar's Fiduciary Grade Service A Welcome Addition.

This question was answered by Matt Lee

RELATED FAQS
  1. Where does a hedge fund get its money?

    Learn how a hedge fund is structured and how the managing partner of the fund goes about the process of finding and soliciting ... Read Answer >>
  2. How do I calculate the loan-to-value ratio using Excel?

    Learn what a mutual fund and a money market fund are, and understand the differences between each and how they serve various ... Read Answer >>
  3. Can mutual funds invest in hedge funds?

    Learn about mutual fund portfolio management techniques and mutual funds' ability to invest in hedge funds, as well as new ... Read Answer >>
  4. How do I judge a mutual fund's performance?

    Evaluate mutual fund performance utilizing resources such as Morningstar; compare the fund with others in its peer group ... Read Answer >>
  5. How do hedge funds determine what assets to own?

    Learn about the various types of investments that hedge fund managers use, and explore basic hedge fund management trading ... Read Answer >>
Related Articles
  1. Investing

    Should You Follow Your Fund Manager?

    Learn how to tell if a fund in flux is still a suitable investment.
  2. Investing

    What Fund Managers Do

    A fund manager is responsible for implementing a fund’s investing strategy and managing its trading activities.
  3. Investing

    Has Your Fund Manager Been Through A Bear Market?

    How to find a portfolio that will survive when the bulls stop charging.
  4. Investing

    Choose A Fund With A Winning Manager

    We break down the key components of analyzing a fund manager's performance so you can find a winner.
  5. Investing

    Your Mutual Fund: It's Riskier Than You Think

    Fund managers often take on more risk than they should, putting business ahead of fund holders' interests.
  6. Investing

    4 Reasons Why Fund Managers Prefer Individual Stocks (BRK-A, VOO)

    Learn about some of the reasons why fund managers prefer trading in individual stocks over index funds, despite their overall cost savings.
  7. Financial Advisor

    5 Characteristics of Strong Mutual Fund Shares

    Discover some of the basic characteristics shared by good mutual funds that investors can use to help them in selecting funds.
  8. Investing

    Fund Management Issues

    The quality of management is a key component of a fund's success.
  9. Financial Advisor

    This Is How Much Mutual Fund Managers Make

    Learn about the high-paying salaries of mutual fund managers and the low level of transparency in income reporting by mutual fund companies.
  10. Investing

    How Mutual Fund Managers Pick Stocks

    Learn about how mutual fund managers choose stocks based on the type of funds they manage and the investment goals of the funds' shareholders.
RELATED TERMS
  1. Funds Management

    The management of the cashflow of a financial institution. The ...
  2. Fund Manager

    The person(s) resposible for implementing a fund's investing ...
  3. Hedge Fund Manager

    The individual who oversees and makes decisions about the investments ...
  4. Management Fee

    A charge levied by an investment manager for managing an investment ...
  5. Institutional Fund

    A fund that targets high value investors with low management ...
  6. Active Management

    The use of a human element, such as a single manager, co-managers ...
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center