There are few performance industries that are more obsessed with data than investment management. Data analytics is at the core of everything we do. The data we study broadly fall into three categories: 1) input data for decision-making and risk management 2) output data (e.g., performance) and 3) investment decision data.
How much time does the average fund manager spend on each of these categories? In my experience, very little time is spent on studying investment decision data. It is often overlooked, and in many instances, the data are not even collected for analysis.
This stands in stark contrast to another data-obsessed industry, Formula 1 — where during the course of any given race, hundreds of sensors on the cars are streaming real-time data to the pits about a car's performance and the driver's decisions. A team of engineers analyzes the data and feeds back information to the team principal and the driver. Investment management as an industry is about 20 years behind Formula 1 in terms of understanding its own investment decision data.
Here are four questions that asset allocators should ask (and fund managers should be able to answer) around core investment skill areas where active portfolio managers can add value, position sizing, trading acumen, selling discipline and timing of investment decisions.