Best ideas exist, so why do managers include underperformers?

Randy Cohen from Harvard Business School, Christopher Polk from the London School of Economics, and Bernhard Silli from the Universitat Pompeu Fabra and the London School of Economics, provide powerful evidence that mutual fund managers can pick stocks that outperform the market.

This latest piece of research, analysing the performance of stocks that represent managers’ ‘best ideas’ has lead them to conclude, among other things, that the organisation of the money management industry appears to make it optimal for managers to introduce stocks into their portfolio that are not outperformers, even though they are able to pick good stocks.