I have reflected on the post I wrote last week about the great superannuation rip off in which I compared the returns from investing in an average growth fund with those derived from investing in the index. It struck me over the weekend that the majority of fund managers (read almost all ) are followers of the Efficient Market Hypothesis (EMH). The central tenet of the EMH is that it is impossible to beat the market because all information is seamlessly incorporated into a securities price and that investor will react in a rational manner to this information.
So the question becomes if the people managing superannuation funds believe this to be true and I think they do, why then then do they have growth portfolio’s? Growth portfolios are in simple terms stock picking portfolio’s designed to beat the market. If you believe you cannot beat the market why then bother with stock picking? This is a massive contradiction and I have no idea how they reconcile this.
But then again they managed to reconcile charging vast amounts for bringing no skill whatsoever to the investment process.