Managers need to get away from benchmarks

One of America's most senior money managers, Al Harrison of Alliance Capital, is highly critical of the way managers are wedded to benchmarks.

He says many of the benchmarks which funds use don't make a lot of sense for the investors in various funds.

This becomes true as indices are constantly changing to reflect the way the market changes.

A clear instance of this characteristic is the huge weighting technology stocks had in indices in many countries around the world 18 months ago.

Because the capitalisation of many tech companies ballooned they started accounting for a greater proportion of mainstream indices.

This situation was amplified by other changes.

For instance in Japan the composition of the Nikkei was changed about 18 months ago which made it highly concentrated in technology companies.

Harrison says the money management business "isn't appropriately measured against a benchmark."

His view is that mangers and advisers need to be far more focused on "doing the right thing for the client" and thinking about risk-adjusted returns.

"I only hope and pray our industry hasn't gone too far with benchmarks and backs off a bit."

Harrison, who runs the US$67 bill large cap growth fund for Alliance Capital was in New Zealand this week to talk to AXA clients and advisers.

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