No home-field advantage for financial institutions

The 40-page report, Squandering Home Field Advantage? Financial Institutions’ Investing in their Own Industries, found no evidence of better investment ability and decision-making when fund managers from mutual funds, banks and insurance companies invest in the industry they supposedly know the best - their own.

In fact, the results showed they were able to time unrelated industries more successfully than their own.

The report said financial institutions “overwhelmingly fail to convert their home-field advantage” of buying and selling shares in their own industries into actual investment returns.

Aneel Keswani, co-author of the study, said: “We would expect investors with first-hand experience in the same industry as their investments to reap the rewards from being well-informed about its future profitability and the specific firms that are likely to outperform, but our study suggests this is not the case.

“Their failure to beat the competition on their home turf amounts to an indictment of some gravity.

“The research calls into question the importance of financial analysts who specialise in specific sectors.”

Mark Dampier, head of research for Bristol-based Hargreaves Lansdown, said: “Most active fund managers are not very good.

“There are only a few top managers around.

“However, I object to the holier-than-thou brigade who slam the active industry and promote the passive industry.

“It is not accurate or constructive. Low cost passive is important, but why would I not want to buy Invesco Perpetual’s Neil Woodford. Why not have the best of both.”