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Investment research is the defining factor by which fund managers produce strong returns, a new study has found, underscoring the role of stock pickers as investors increasingly shift to passive portfolio strategies.

An analysis of 752 equity investment strategies run by fund managers on behalf of large institutional investors, such as pension funds, found that research – the rigour behind stock picking – was the overwhelming driver of excess returns.

The findings, from data analysis group Inalytics, may appear intuitive, but the implications for fund managers and their clients are significant. Fund managers rely on a varied list of research sources, from analysts at brokerages, boutique research firms, to in-house teams that drive portfolio management.

The findings show that strong, differentiated research helps investment managers outperform their benchmarks to add alpha to portfolios. Additional means of squeezing outperformance, such as astute trading, are largely insignificant.

“If you’re an active equity manager, the core skill they need to display to create ongoing alpha for customers is the ability to identify the stocks to own in the portfolio – that is where the value is created,” said David Goodman, managing director, Asia Pacific, for Inalytics. Read more here.

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