How NOT to Pick Investment Funds

by | May 4, 2017



Two very entertaining studies about investment fund names, enjoy:

  1. In a recent academic paper entitled “Hedge Fund Flows and Name Gravitas” the researchers found that “Investors allocate more flows to hedge funds whose names exhibit gravitas — defined as a combination of words from geopolitics and economics, or suggesting power. These words are usually associated with weight, influence, authority, seriousness and good judgement.” Was this a good way to pick hedge funds?  No. The study found that the gravitas name funds tended to overcharge and underperform.  Who are these investors?  Given the high minimums of hedge funds these were mostly institutional investors (and their consultants) and ultra high net worth investors.  So, the so-called “smart money.”
  2. Another finding from Morningstar:  Mutual funds with “alpha” in their name on average produce a negative 5-year alpha as do funds with “plus” in their names. “Alpha” is a measure of fund outperformance.  A negative alpha is not good.

*the Granite Peak Global Alpha Plus Fund is a name I made up.


Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.


Subscribe To The IFOD

Get the Interesting Fact of the Day delivered twice a week. Plus, sign up today and get Chapter 2 of John's book The Uncertainty Solution to not only Think Better, but Live Better. Don't miss a single post!

You have Successfully Subscribed!

Share This