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

  1. Can hedge funds trade penny stocks?

    Hedge funds can trade penny stocks. In fact, hedge funds can trade in just about any type of security, including medium- ... Read Full Answer >>
  2. Are hedge funds regulated by FINRA?

    Alternative investment vehicles such as hedge funds offer investors a wider range of possibilities due to certain exceptions ... Read Full Answer >>
  3. Do financial advisors charge VATs?

    The Personal Finance Society (PFS) and with Her Majesty's Revenue and Customs (HMRC) have outlined when a value-added tax ... Read Full Answer >>
  4. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  5. Can hedge fund returns be replicated?

    You can replicate hedge fund returns to a degree but not perfectly. Most replication strategies underperform hedge funds ... Read Full Answer >>
  6. Can foreign investors invest in US hedge funds?

    U.S. hedge funds are open to accredited investors. When they distribute profits to investors, those proceeds are taxed at ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    The Democratization of the Hedge Fund Industry

    The coveted compensations of hedge fund managers are protected by barriers of entry to the industry, but one recent startup is working to break those barriers.
  2. Retirement

    Two Heads Are Better Than One With Your Finances

    We discuss the advantages of seeking professional help when it comes to managing our retirement account.
  3. Personal Finance

    How the Social Security Reboot May Affect You

    While there’s still potential for some “tweaking” around your Social Security retirement benefits, I’d like to share some insight on what we know now.
  4. Professionals

    A Day in the Life of a Hedge Fund Manager

    Learn what a typical early morning to late evening workday for a hedge fund manager consists of and looks like from beginning to end.
  5. Investing Basics

    Do You Need More Than One Financial Advisor?

    Using more than one financial advisor for money management has its pros and cons.
  6. Personal Finance

    How Tech Can Help with 3 Behavioral Finance Biases

    Even if you’re a finance or statistics expert, you’re not immune to common decision-making mistakes that can negatively impact your finances.
  7. FA

    Paying for College: Utilize These Top Hacks

    Saving money for college is difficult for many families, but it doesn't have to be. Here are some overlooked hacks to save money on college costs.
  8. Financial Advisors

    Are Alternatives Right for Your Portfolio?

    Alternative investments are increasingly making their way into retail investors' portfolios. Are they a good fit?
  9. Financial Advisors

    Bull vs. Bear Markets: How to Be Prepared for Both

    Bull and Bear Markets are a reality that every investor must be prepared for. Here are a few tips.
  10. Retirement

    Top Signs You Aren’t Ready to Retire Yet

    Think you are prepared to retire? These warning signs may indicate otherwise.
  1. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  2. Financial Singularity

    A financial singularity is the point at which investment decisions ...
  3. Tactical Trading

    A style of investing for the relatively short term based on anticipated ...
  4. Maximum Drawdown (MDD)

    The maximum loss from a peak to a trough of a portfolio, before ...
  5. Gross Exposure

    The absolute level of a fund's investments.
  6. Fintech

    Fintech is a portmanteau of financial technology that describes ...

You May Also Like

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  3. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  4. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  5. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  6. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
Trading Center