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. What's the difference between a mutual fund and a hedge fund?

    These two types of investment products have their similarities and differences. Read Answer >>
  4. 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 >>
  5. 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 >>
  6. 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. ETFs & Mutual Funds

    What Fund Managers Do

    A fund manager is responsible for implementing a fund’s investing strategy and managing its trading activities.
  2. ETFs & Mutual Funds

    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.
  3. Markets

    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.
  4. ETFs & Mutual Funds

    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.
  5. Trading

    Fund Management Issues

    The quality of management is a key component of a fund's success.
  6. 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.
  7. Managing Wealth

    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.
  8. Managing Wealth

    Passive Vs. Active Management

    By Richard Loth (Contact | Biography)In almost all economic endeavors, the quality of management is generally a key component of a successful operation. Managing a mutual fund is no exception ...
  9. ETFs & Mutual Funds

    How to Rate Your Mutual Fund Manager

    What to really look for when you're deciding on a mutual fund.
  10. ETFs & Mutual Funds

    The Difference Between Mutual Funds And Hedge Funds

    Both mutual funds and hedge funds are managed portfolios. A manager chooses securities and then lumps them into a single portfolio.
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. Institutional Fund

    A fund that targets high value investors with low management ...
  5. Management Fee

    A charge levied by an investment manager for managing an investment ...
  6. Portfolio Manager

    The person or persons responsible for investing a mutual, exchange-traded ...
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center