Recommended fund lists

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Why, for investors, recommended fund lists are about as useful as a chocolate teapot

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When choosing a fund, investors often rely on a recommended fund or buy list. These are usually provided by platforms or brokers.

But do fund lists help or hinder investors?

Research by UK’s Financial Conduct Authority, published in 2016, showed they can be very misleading.

The FCA found that most funds included in fund lists fail to beat the market and that firms who publish them are often biased towards their own-brand funds.

We shouldn’t be surprised. Academic research has consistently shown that, in the long term, only a tiny fraction of funds outperform the market on a cost- and risk-adjusted basis.

Dr David Blake form Cass Business Buisness School puts the figure at around 1%...