Does it matter who manages your money? Fidelity’s Special Situations fund slipped down the list of bestselling UK retail funds after Anthony Bolton, its manager, announced his plans to retire. The carefully orchestrated anointing of Jorma Korhonen as his successor on Tuesday may reassure investors. But the logic of investing with “star” fund managers is flawed.

There is no doubt that Mr Bolton has delivered. His fund has outperformed the FTSE 100 over the past decade by nearly 100 per cent. But it is widely acknowledged that in both the UK and the US, active managers do not, in aggregate, add sufficient value to overcome their additional costs. Over the past 20 years, on average, only 29 per cent of active funds in the IMA UK All Companies sector have beaten the FTSE All-Share Index over three-year periods.

In addition, luck explains some of this outperformance. Bestinvest, the financial adviser, measures managers’ outperformance against an appropriate benchmark adjusted for risk. It then subtracts the probability of this result being achieved by chance. It concludes that the success of only 11 per cent of 1,562 UK managers monitored can be attributed to skill alone. Not only do very few managers genuinely outperform but their past performance is no guide to the future. While research suggests that consistently poor performers continue in the same vein, the same cannot be said of managers who have demonstrated superior returns. One reason may be that they become hampered by their own success, in that their funds grow to a less manageable size. Mr Bolton deliberately tried to limit the growth of his £6bn fund, the UK’s largest.

Rather than shooting for the stars, retail investors might do better to follow Warren Buffett’s advice – he recommends they put their money in low-cost index funds.

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