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Thursday, June 21, 2012

Is Home So Sweet for PMs?

News summary by MFWire's editors

Clearly some fund managers aren't big classic literature fans, because they're proving that when it comes to stock picks, you can go home again.

According to an Indiana University Kelly School of Business study, portfolio managers tend to invest more in the state where they grew up, reported Ian Salisbury for Smart Money. The average overweight into local funds is by around 12 percent.

The study found younger managers tended to show more hometown bias. Stocks near the funds' locations were also favored.

Study co-author Scott Yonker said that while the down home stocks didn't perform worse than the other parts of the managers portfolios, there was the risk that too many of the businesses in a fund could be hit by the same bad local business climate.

"One takeaway from the study is that investors should invest in funds that are run by more experienced professionals, or diversify across managers," said Noah Stoffman, co-author and assistant professor of finance, to Marketwatch. "We also hope this study makes fund managers more aware of how they choose stocks." 

Edited by: Ben Geier


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