In theory selecting the right balance of the major asset classes will impact overall portfolio return more than which individual assets are chosen within each asset class.
Most fund managers would argue that they can outperform the benchmark for their asset class by picking individual assets within that asset class
Fund managers are behind the eight ball to start with because the first performance hurdle they need to overcome is their own fees which must of course be subtracted from overall fund performance to measure true fund performance for the investor
The other limitation that fund managers face is that if they are successful and their funds under management (FUM) increases over time, then their fund may become so large that they comprise such a large proportion of that index that beating the index becomes improbable.
The four main asset classes are:
- Stocks or equities
- Fixed Income or bonds
- Money market or cash equivalents
- Real estate or other tangible assets
There are exceptions however, some Hedge Fund managers, some ‘binary’ investing managers and Peter Lynch with the Magellan fund and Warren Buffett with Berkshire Hathaway are probably two of the most well known examples of fund managers consistently outperforming the index or benchmark for decades not just years.