Are female fund managers better?

We look at the record of the seven best women fund managers.

Women aren't highly represented in fund management, making up only 5% of all fund managers. 

Bestinvest collates data on funds and fund managers. Recently it published details of the top women fund managers and described some of them as “exceptional role models”. 

Fund management is an area where very, very, very few people of any gender prove to be truly exceptional in the long run, so I took a look at Bestinvest's list of the top seven women fund managers to see if any of them really are reliable outperformers. 

*Here I use Trustnet's data because it's easier to see managers' records over ten-year periods and some other data I needed, although it does estimate and compare their performance differently to Bestinvest.

**Over seven years. Trustnet had no specific data over 10. 

I'll help you understand what that table says, and doesn't say, in a moment. 

Firstly, a quick note about Margaret Lawson's record. Her time as a fund manager appears to have been interrupted at some point: she started in fund management back in 1985 according to Bestinvest and is a fund manager today, but Trustnet and Bestinvest state her record lasts just 14 years. 

Trustnet doesn't have enough data prior to 2005, which is why Lawson's record in the table above is over the past seven years, instead of 10. Bestinvest, however, reports that Lawson returned less than the benchmark up to the year 2005 by a total 23%. 

These managers have all been better than average

The above table shows how these managers did against the average fund manager investing in the same sectors. Notice that they are typically co-managers or even deputy managers, and it's difficult under these circumstances for investors to ascertain how much of their higher returns are due to their own skills. If, under further research, you find it too difficult to establish where the skill lies, you should play safe by not investing with them when they go off by themselves. 

Beating your fellow fund managers, as shown in the table above, is easier than beating the market or in beating funds that merely attempt to track the market. 

If the market rose 50% in the past five years, a market-tracking fund, after fees and costs of, say, roughly 1%, might have made 40%-45%. (In a few sectors cheap tracking funds aren't available, but there are enough to choose from that almost any investor paying close attention to costs will be able to find an alternative they're satisfied with.) 

At the same time, the average actively-managed fund (and the average fund manager) might make only 30%-35%, after management fees of 1.5%, and hidden costs and other costs of, say, 1%. The manager has great difficulty making up for those extra costs. On average, their returns are reduced by the size of those costs. 

Using those figures – which I must emphasise are very rough estimates – against the returns of Bestinvest's women fund managers, we get an indication that some of them might not have beaten simple trackers by much, or at all, despite the greater risks you take by paying their higher costs: 

As you can see, these managers are less spectacular when compared to a rough estimate of what trackers might have given you. Margaret Lawson and Jane Andrews might even have fared no better than the market, and perhaps worse, if there are trackers available in their sectors. Using this simple measure, only Julie Dean and Rosemary Banyard appear to have justified, and made up for, their higher costs, by providing outstanding rewards in the sectors they're investing in. 

Consistency is the final ingredient

Is beating trackers over ten years enough to make these managers exceptional? Dean and Banyard have given what looks likely to be seriously market-beating returns, but how did they get there? Was it through consistent outperformance? 

Take a look at this third table, showing how many years investors like you might have invested with those same managers and still done no better than the average fund manager: 

The above table paints a disturbing picture. It shows my rough estimates taken from the Trustnet website of the longest periods of time that you might have invested in these managers and still done no better than an average actively-managed fund. 

What would you do as an investor if you saw your manager was just average after eight or more years? That's what all of these have done. (Except Lawson, but remember my explanation of her interrupted record above.) 

By my rough estimates, if you invested in Julie Dean, the apparent star of our table, back at the start of the year 2000, you would be no better off ten years later, at the end of 2009, than if you'd invested with the average fund manager in her sector. 

If there are good tracker funds in the sectors she invests in, you'd have likely got far lower returns during that time than someone who decided to skip the high management costs and track the market. (And even if you chose a tracker fund in another sector that had lower returns, you might well have got to where you are with less risk, due largely to the lower costs.) 

The reality appears to be that the vast bulk of Dean's higher returns in the past ten years has come in just a minority of years, which could easily be accounted for by luck. 

Perhaps there are other factors. Maybe when she started she was naïve and had a lot to learn, or perhaps she was dragged down by co-managers – or co-managers have given her a recent boost. Whatever the reason, I think it would be reckless for an investor to assume this manager has skilfully beaten the market based on the 10-year performance alone. You need to either look elsewhere or investigate this manager and her record further, methodically and minutely. 

I think this all shows how hard it is to find exceptional managers, whatever the gender. 

Get busy learning

This is just a very basic overview of the fund managers mentioned. There are a lot of questions I have left unasked and unanswered about managed funds (not least why virtually no fund managers can justify their charges), and there are several very important tangents that I have not covered, as well as further important information, for example about the methods I've used here. I'd need at least 50 times my maximum word limit to cover everything in a useful way. 

What I want you to take away from this brief article is that trying to pick fund managers is a very complicated subject, which is perhaps one reason why so many fund websites try to simplify – oversimplify – things for you, e.g. by focusing your attention on three-year or five-year returns when growing piles of evidence say those are completely useless ways to predict future performance. 

As soon as you accept that choosing managed funds is tricky, the sooner you can start making better decisions – whether that is to do an awful lot more research before putting your faith in a fund manager, or to stay out of managed funds altogether.

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