Reading 48 Question 11

Can anyone follow the logic in the answer regarding why if the international mangers outperform some national market index then the domestic managers must have underperfomed ?

it’s probably based on the theory that the whole market is just the sum of all investors, so if one set of managers on the whole out-performed the market then the others must have under-performed. Of course, once you deduct fees & commissions, etc, the average of all investors under-performs the market index as a whole group, because market indexes are before costs, and suffer survivorship bias, etc. But in the example you give, generally it would be the international funds which under-performed the local managers/investors as a group. In most markets the locals have much more info, speed, language, insider knowledge, etc, and it’s the foreign investors who generally under-perform as a group. that’s just my guess anyway.

Thanks Null

By the way could provide a reference for the next question (12) in that reading or some ways of answering ? Not even sure what it’s asking