The number of financial products currently available to portfolio managers is impressive, with some of today’s instruments offering enhanced liquidity and eased access to the underlying markets.

However, when it comes to selecting the best instrument for a given situation, a recent study revealed that portfolio managers and their trading desks primarily choose instruments based on past experience rather than through an analytical process.

While the accumulated knowledge of an experienced portfolio manager should not be undervalued, a move toward more systematic instrument selection could ultimately enhance fund returns by capturing alpha invisible to the naked eye.

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