More Is Better

More choices translate into more possibilities of a better outcome. More choices mean more competition, and more competition means better results. Yet according to one recent study,* investors today choose only 80 investment companies, or 10% of total firms — those with more than $20 billion in assets under management — to manage almost 90% of their assets.

Why are investment assets so concentrated in such a small, undiversified group of companies — especially when investors need to generate superior returns? Because institutional selection criteria frequently compel large corporations and public pension funds to choose known quantities. But when investing with large, well-known companies that in effect are the market, investors risk “buying the market,” thereby foregoing the superior returns that can be realized through harnessing market inefficiencies.

Progress believes that investors deserve more options, including talented new investment companies that cannot afford the luxury of market-like returns. Like Progress, such companies tend to be broadly owned by their employees, resulting in strong psychological and financial incentives to outperform.

* Based on a study by Progress Investment Management utilizing Möbius and Nelson’s databases.