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It has been shown time and again that markets are unpredictable and that a buy-and-hold strategy is advantageous ("A random walk down wallstreet" / Malkiel, and many others). Moreover, newer and newer high-frequency trading algorithms are closing the gaps on any potential short-term gains that could be possibly made by human investors.

In such a reality, are there any financial (not psychological) advantages in choosing a human portfolio manager over a robo-advisor?

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  • This may be one of the best rhetorical questions I've seen at Money.SE Commented Sep 10, 2017 at 16:17
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    I'm confused by your terminology, but maybe it's just because I'm ignorant. My understanding is that a portfolio manager is someone who runs an actively managed fund, such as a stock fund or a pension fund, and decides what to invest the fund's money in. They don't deal with individual customers or give them advice -- that would be a financial advisor's job. But you use "portfolio manager" in contradistinction to "robo-advisor." What do you mean by a "robo-advisor?" Are you asking about actively managed funds versus index funds?
    – user13722
    Commented Sep 10, 2017 at 22:19
  • @BenCrowell thanks for your comment. By "portfolio manager" I mean a function similar to that of a wealth management firm.
    – Sparkler
    Commented Sep 11, 2017 at 3:10

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There are some research done to show that (some) human stock managers do have skills in stock picking, and the mediocre performance of the funds are a result of various offsetting factors.

Here is an article on this topic, listing some of these factors - asset bloat, over-diversification, style box. http://www.futuresmag.com/active-managers-actually-do-outperform-if

Here is one of the papers supporting this idea http://personal.lse.ac.uk/POLK/research/bestideas.pdf

We find that the stocks that active managers display the most conviction towards ex-ante, their "Best ideas," outperform the market, as well as the other stocks in those managers' portfolios, by approximately 1 to 2.5 percent per quarter depending on the benchmark employed. [...] We argue that investors would benefit if managers held more concentrated portfolios.

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    In the futuresmag article, the vast majority of the "no bloat" securities gave lower returns than the S&P 500 for various time windows. Only a select few outperformed the S&P 500, but only for select time windows. And that's before you factor in the higher management fees. Am I missing something?
    – Sparkler
    Commented Sep 10, 2017 at 19:05
  • @Sparkler I actually skipped the "best funds" part as I am skeptical of the section, and I don't know anything about those funds. But the rest of the article is at least supported by various research paper (like the one I linked), and the research can be replicated.
    – xiaomy
    Commented Sep 11, 2017 at 16:36
  • An interesting article! That would suggest you should go with a manager who will ignore "style boxes" and diversification and just buy what he thinks is good -- and that kind of manager may be tough to find for the reasons described in the article. But one thing I don't see in either the article or the paper is a discussion of whether the same manager will consistently outperform the index over time. As far as I can tell, that paper tracks the performance of a "fund" that buys the aggregate of all managers' "best ideas". But that is essentially an index of managers, not a human-managed fund.
    – BrenBarn
    Commented Sep 12, 2017 at 7:39
  • @BrenBarn Good point. And if one can get a hold of the constituents data it can be done very easily. Though I'd expect a manager-specific analysis of this kind to show up in the manager's marketing material (as opposed to an independent research). That is of course if the manager indeed has demonstrated skills in the past.
    – xiaomy
    Commented Sep 12, 2017 at 14:14

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