Active fund managers should perhaps be "benchmarked against monkeys", say academics, after they found 10 million portfolios of 1000 stocks weighted at random would nearly all have beaten a conventional fund benchmark over the last 43 years.
The research at Cass Business School found equity indices constructed "as if by monkeys" would have produced higher risk-adjusted returns in the US than an equivalent index weighted in the conventional way – by market capitalisation.
Funds indexed against the S&P 500 hold $1.3 trillion of investors' cash, and a further $5.6 trillion of funds are benchmarked against the performance of such an index.
Most of the £700 billion held by UK retail investors in active funds is benchmarked against a market-cap index, and there is £63bn in tracker funds.
Recent US research claimed "monkeys throwing darts" could outperform most funds, but did not measure the effects of weighting.
Co-author Dr Nick Motson said: "Beating a market-cap index hands down sounds exciting, but what if I tell you 10 million monkeys would also have beaten it?"
John Belgrove at consultants Aon Hewitt which commissioned the study, said cap-weighted investment strategies had "inherent weaknesses" but had still been "a challenging benchmark for active managers to beat".
The researchers programmed a computer to randomly pick and weight each of the 1000 stocks in the sample.
Co-author Dr Andrew Clare said: "We effectively simulated the stock-picking abilities of a monkey.
"The process was repeated 10 million times over each of the 43 years of the study.
"Most shockingly we found that nearly every one of the 10 million monkey fund managers beat the performance of the market cap-weighted index.
"We should perhaps be benchmarking our fund managers against monkeys."
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