Many fund managers, whether they manage a mutual fund, trust fund, pension, or hedge fund, can access investment resources that the average investor cannot. However, the type and quality of information obtained from the market remain the same for all investors.
The basic information that managers use is publicly available in the form of news releases, annual reports, and filings with pertinent exchanges. However, fund managers will often have a team of financial analysts using the latest software to analyze specific companies, markets, and economic variables, and will make recommendations and forecasts on future prices and market trends based on this analysis.
With access to these resources, the conclusions fund managers reach regarding particular security or market activity are often no better than what a retail investor can do with a TV remote in one hand and a mouse in the other. However, a fund manager is highly trained and must adhere to a set of ethical standards.
Training often includes a Chartered Financial Analyst designation issued by the CFA Institute. The CFA program involves three rigorous levels of standardized testing, but to enroll, you must hold, at a minimum, a recognized university degree.
To retain a CFA designation, the holder must adhere to the Institute's Code of Ethics and Standards of Professional Conduct, or risk being suspended or expelled from the CFA society. In addition to their education and experience, fund managers will also thoroughly understand macroeconomics, international trade, and behavioral finance. 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 them 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 a managed fund. For example, a pension fund manager may leverage the fund to purchase a security, and often, this strategy is illegal. Still, the investor will not know the fund manager is doing this. In this scenario, the possibility of loss is greater than if the manager took a non-leveraged position.
Although fund managers are highly trained professionals, they 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.
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