Are both TA and FA the essential skills for mutual fund manager?

I understand that fundamental analysis is super important, and this is what CFA exam mostly focus on. I am wondering if technical analysis is also important to a mutual fund manager?

Mutual fund managers generally do not focus on technical analysis. However, many fund managers do rely on statistical methods, particularly for replicative portfolios or to reduce tracking error.

Sales skills. They get paid an expense ratio of total AUM, not on a basis of performance. So get the muppets to buy in!

That’s true. But if they perform bad on their fund, how to persuade people to trust them? I assume investors will take manager’s past performance in to account.

Fundamental analysis is the bread and butter. Though depending on the fund, technical analysis is helpful in screening/filtering names to do a deeper dive. Particularly growth oriented firms like RS Investments rely on technicals heavily in making decisions. If you have a background in technical analysis / programming, growth oriented firms, especially smaller ones, are your sweet spot.

time to go for the CMT…been looking at it for a while

^ It might hurt you more than help you in asset management. Too many companies (mistakenly) think it’s worthless and worse, look down on it.

I used techinicals this year more than at any point in my career. I think they are very important and have designed a fair portion (5-10%) of my investment system around technicals. However, I wouldn’t use them in isolation, I only use them as a starting point or to tell me what is likely to happen with a stock price near-term. There are definitely some predictive patterns, just like with fundamentals. The patterns get stronger when you combine TA and FA.

I agree the CMT is a waste of time, but I would say that about the CFA too (although at least the CFA won’t hurt you in the interview process like the CMT might).

im more interested in the CMT for myself. i wouldnt even put it on my resume unless there is sometning in the job description about TA

That’s not necessarily the case anymore. Many firms are now basing comp on long-term risk-adjusted performance.

To OP - as others have said already, it depends on the strategy. Many growth managers incorporate some aspects of momentum investing and that’s all technical. I haven’t heard of TA being used too much on the value side though.

Crap! You mean that compensation is reverting to something vaguely rational now? Just my luck!

Comping on risk-adjusted performance is tricky though. What metric do you use? It should be benchmark aware so either Alpha or IR, but both of those have problems. Comp on Alpha and you encourage style drift. Comp on IR and you encourage enhanced indexing. Comp on AUM and your PM spends more time on CNBC than managing the portfolio.

No easy answer.

Can anyone explain why the CMT may hurt in the interview process? I can see people thinking it’s worthless (though as a CMT charterholder I disagree), but how can it be a negative unless the CMT only believes in technicals and thinks fundamentals are bunk? If someone has the CFA and CMT, how is that worse than having the CFA alone?

^ I don’t know if it would ‘hurt’ per se, but then again I don’t interview in the ER space.

True fundamentalists see TA as nothing more than voodoo self-fulfilling prophecies. I’m leaning more and more on the value of TA in my own allocation decisions (RSI/MA/Etc).


-Financials are often restated rendering FA conclusions bunk. The tape is never (sans flash crash) restated.

-Financials only come out 4x a year and far past the book close date. The tape trades 252 days a year.

-Re Self Fulfilling prophecy; FAs do a DCF, P/E Historical and Comparable, and maybe EV/EBITDA comparable in nearly all cases. A DCF is a DCF. How is this not a self-fulfilling prophecy one in the same when each FA comes within pennies of estimated earnings with each other?

-Different companies use different accounting methods havocking a headache for comparison. The tape price is the tape price.

Looking at the tape will give one insight into the psychology of the crowd which is what behavioral finance is based upon. While philosophical finance books tend to say, “The value of any stock is the present value of its future cash flows.” The real value of the stock is what the buyer will pay for it. Enter TA. While empirical evidence and a fortune formula have yet to be discovered, it is worth looking at the wisdom/wizdumb of the crowd when looking over equities.

FA – What to Buy.

TA – When to Buy.

I agree completely. Seeing as we’re almost in 2014, I still find it hard to believe that most analysts completely ignore charts. FA and TA should be used in tandem.

wizdumb, I like that. Well played, sir.

I don’t think it’s intrinsically negative. The value in interviews depends on your reasons for obtaining the credential and how you regard the material. If you are an empty shell and just spout charting theory as complete truth, then some analysts might think that you lack the ability to think independently. However, if you are able to show how the material complements your other intellectual interests, than the credential could be valuable, or at least not negative.

Most analysts ignore charts because they are told to. Occasionally, they will refer to recent price history or trading range. The fact that analysts don’t pay attention to technicals in their professional work does not mean that they therefore see no value to it in their personal investing (though that probably varies quite a bit with the analyst).

I’ve come to think that technicals are pretty important, unless you have very long holding periods. Even so, I pretty much never buy something that is in a major downtrend on a chart, though I might keep it in a watchlist for when a trend changes.

I still think the CMT is a negative from the perspective of, “Does this person fit into our camp or do they have a different (and scary!) perspective?”

The investment industry is characterized by group think within different investment styles that have little overlap with one another. To oversimplify, you have value, growth, momentum, quant and event driven. Most CFA types are likely to land at a value / fundamental shop if they can break into the industry. There’s a chance it could also be a growth shop, but most growth shops are less fundamentally oriented and are more concerned with the “story” a company is providing.

Anyway, the value investing discipline is the most intellectually “pure” of all the investing disciplines in a sense (because it’s backed by hard numbers and clear thinking), but it is also by far the most arrogant of the disciplines by orders of magnitude. You can hear this in the way people talk about value investing:

“I have conviction”

“The market will eventually come around to my way of thinking”

“We do more intensive due diligence than other firms / people”

And yet, so many people are bad at value investing. I think it is actually the single most dangerous type of investing if applied incorrectly. Lots of stupid people can make money chasing stocks that are going up (especially these days), but stupid value investors get carried out in body bags.

Value investors are aware of other possibilities in the analysis process such as TA, and not only wilfully choose to ignore those possibilities, but are actually antagonistic towards them: “Psssh, I haz teh DCF, I don’t need teh squigglez on teh chart!!1” This is unfortunate in my opinion because it’s unnecessarily restrictive and leads to an incomplete approach. In a competitive market, why would it serve someone to completely ignore what other people are doing and thinking? That approach implies the investor thinks he is smarter than everyone else, which is dangerous IMO.

FWIW, there are some nice recurring set ups in TA that complement the value investing approach. There’s one pattern I discovered in early 2012 that I have made money on five out of five times so far, and this pattern (and a few others) are logically consistent with the value investing approach, not contrary to it. But I think it would be hard to explain this (and the CMT) to a hardcore value guy.

Value Investors : Investing Styles :: Physicists : Sciences

(Quality post, bromion. Kudos and Happy New Year)