Investment trust chairman Alex Hammond-Chambers has slammed the industry for its rigid use of indices as fund benchmarks.
Speaking at last week's AITC directors' conference, Hammond-Chambers claimed investment trust managers are exposing investors to unnecessary risk to keep in touch with the index.
For UK funds, he cited Vodafone, in which several managers have invested as much as 12 per cent of their portfolios because it makes up such a big part of their benchmark index.
He said too many managers believe outperforming the index is more important than achieving long-term absolute returns. He suggested managers need not restrict themselves to a single index but should consider using more than one benchmark for fund performance.
Hammond-Chambers is chairman of four of the highest-profile investment trusts including Fidelity's Japanese values and special values. He is also a director of Finsbury income and growth trust.
He said: “I think there is quite a lot of investment correctness, both political and best practice, but it is not necessarily correct. If you do not make money over a longer period of time, it does not matter if you have outperformed the index or not.”