Manager rankings: Can investment skill really be reduced to a single score?
The investment industry has spent decades searching for simple, accessible ways to evaluate and rank fund managers. It’s an understandable goal. Numerical ratings are convenient, easy to communicate, and enable quick comparisons.
The industry has long recognised the limitations of relying on past performance alone. The question is whether replacing one number with another really solves the underlying problem. Evaluating investment skill is so complicated that distilling it to a single number risks overlooking many important qualities that differentiate managers.
In this paper, we explore why we have deliberately chosen not to rank managers and what behavioural profiles can reveal that a single score cannot.
Main takeaways
No common blueprint: successful managers achieve strong results via different behavioural strengths.
Selective excellence: only a few behavioural strengths are required for managers to succeed.
Distinct approaches: top fund managers rarely share the same behavioural qualities.
Hidden differences: behavioural profiles can reveal differences between managers that are concealed by points alone.
Looking beyond a single score
Let’s start with a clear message: we’re not saying that numerical measures lack value.
They can actually serve a useful purpose, but you need to be aware of the limitations. Assessing a fund manager’s abilities is very complicated. Numerous factors influence whether they’re successful and have a repeatable process. This is why we prefer behavioural profiles over behavioural scores: they preserve the individual characteristics that a single overall measure can obscure.
Our latest analysis offers several insights that reinforce this perspective.
No common behavioural blueprint
Investment success isn’t determined by a single set of common behaviours, according to our analysis of 249 fund managers.
We didn’t find one single ‘behavioural strength’ present in more than 20% of the best-performing managers we examined. It means that successful managers appear to achieve similar outcomes through different combinations of behavioural strengths.
This observation supports our belief that behavioural analysis can reveal multiple successful identities rather than one universal investment blueprint.
Success doesn’t require widespread excellence
Successful managers are only outstanding in a few areas. In fact, 80% of them demonstrated no more than four exceptional behavioural strengths. Even more telling was the fact that more than 40% of them didn’t have any exceptional behavioural strengths.
Success appears to depend less on displaying exceptional behaviour in isolation than on consistently combining several solid behavioural characteristics.
These findings reinforce our belief that successful managers are characterised by distinctive behavioural profiles rather than universal behavioural excellence.
Top managers don’t share identities
Behavioral similarity between successful managers is extremely low, according to our analysis. This suggests behavioural excellence is individual, not convergent.
Using Jaccard similarity, the median similarity between them was zero, while at least 75% of manager pairs shared no exceptional behavioural strengths.
However, there’s an important distinction. We’re not saying that successful managers have nothing in common. They may still demonstrate similar levels of competence.
Our observation simply indicates their most distinctive behavioural characteristics rarely overlap. This illustrates the benefits of behavioural profiles over rankings.
Similar scores may hide different approaches
Two managers can achieve similar overall behavioural scores…even while demonstrating very different behavioural strengths.
While a single score tells us how much behavioural quality a manager demonstrates, a behavioural profile helps explain how that quality is actually achieved. It also means that managers with similar overall behavioural qualities may derive them from fundamentally different combinations of behavioural strengths.
Once again, this supports the assertion that behavioural profiles help us better understand a fund manager’s approach.
Conclusion
There are different ways to evaluate fund managers, and we are frequently asked why SkillMetrics deliberately avoids assigning single behavioural scores. This document answers these questions. All our findings point to the same conclusion: Successful investment behaviour is too diverse to be represented by a single behavioural ranking.
Looking only at aggregate scores risks masking the very characteristics that differentiate one manager's process from another. It’s also important to acknowledge that behavioural profiles don’t replace numerical metrics; they complement them. This means they can work in tandem. Where numerical measures indicate how much quality or performance exists, behavioural profiles explain how that quality is generated. It can also reveal whether two apparently similar managers are actually succeeding through fundamentally different approaches.
This means behavioural analysis is more than just another league table; it provides a deeper understanding of how fund managers create value through different approaches.
About:
Investment performance is often evaluated through returns alone. SkillMetrics® helps managers and allocators go one step further by examining the decisions that produced those outcomes.
By analysing Buy, Scale-Up and Scale-Down decisions alongside behavioural patterns and portfolio context, SkillMetrics® helps identify the evidence that links performance to the underlying investment process.
If you would like to explore what your investment decisions reveal about the way performance is generated, we would be pleased to discuss.