Behavioral finance has gained popularity in the industry as a method of understanding and guiding investor behavior, but one expert says its principles can be applied to measure the work of fund managers as well.

Research into understanding the human element of investment decisions exposes a flaw that, according to AthenaInvest CEO and director of research Tom Howard, currently exists in active management: despite corporate advertising to the contrary, he says, most fund managers can only be active toward a certain number of picks and fund volume. "Once the fund reaches a billion dollars, excess returns virtually disappear," Howard says.

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