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Leola Ross
The conference is being held online this year, as a series of webinars.
One considering the strength of asset management was conducted by Leola Ross, Russell Investments strategy research director.
She outlined research measuring the performance of sample managers who had been defined as having demonstrated skill.
It showed that the active managers outperformed in the period of 1999 to 2014, returning a median 4.73% in outperformance between 1999 and 2002. But a “performance pandemic” in 2015 to 2018 saw performance drop away markedly. “Skill was not enough,” she said.
There were a few reasons for that, she said. Mega-cap stocks outperformed dramatically, both in developed economies and emerging markets. “That was really disruptive. What a lot of active managers are doing is more in the mid and small-cap area.”
Many active portfolios were also underweight to the US, she said, because there were so many active managers there that it was hard to get alpha. But the US outperformed “massively” during this period.
Emerging markets as a region underperformed, she said, which hit managers who retained an emerging markets exposure in the hopes of boosting their return.
“Typical sector bets might have worked against them,” she said. “It’s been a tough time to be extra beta when it was the wrong beta.”
Many tilts did not pay off, she said. “They were too much to come back from on a stock selection basis.”
But she said there were signs of improvement between 2019 and 2020. While the range of active manager returns “blew out”, there was significant upside for skilled and lucky managers. In the period of 2019 through to the end of March, performance ranged from 3% below the benchmark to more than 5% above for the top quartile.
“There was material downside if you were wrong but here were managers who did well if they were skillful and lucky … managers are working hard to find opportunities and some of them are finding it.
“Active management is not dead, whether or not it’s fully recovered – that's a tough one.”
She said 2015 to 2018 had been a period of excess expectations. “Let’s manage our expectations. Another wise thing to do is be careful about unintended exposures. If you believe something is going to pay off, take that bet but if you think it’s just a bet potentially unrewarded be cautious.”
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