Blogs

What We're Reading Now

By AMC Blog posted 09-27-2021
Considering the Arguments for and Against Actively Managed Funds in DC Plans – Plan Sponsor Earlier this month, the CFA Institute Research Foundation published a “guidebook” that has drawn a significant amount of criticism in the investment community. Active Investment Managers and those who support their work, including the Active Managers Council were quick to point out the flaws in the self-styled “guide for plan sponsors.” This guide by the CFA Institute relies on outdated, flawed narratives about active management and disregards the new thinking, role and benefits of active management. Simply put, the industry deserves a guide for plan fiduciaries that ...

What We're Reading Now

By AMC Blog posted 08-02-2021
“Active management is almost synonymous with ESG,” says Jay Horgen, President and CEO of AMG. The opportunity for active managers with respect to sustainable investing is the focus of this issue of What We’re Reading Now. We also look at the growth in active ETFs. Affiliated Managers Group’s latest affiliate acquisition of Parnassus, a leader in sustainable investing, illustrates the emphasis institutions are placing on the inherently active nature of ESG investing. According to a paper released this month by Casey Quirk, there is opportunity for active management to capture share from indexed strategies in the rapidly growing market for sustainable investing. ...

What We’re Reading Now

By AMC Blog posted 06-08-2021
Active Equity: “Reports of My Death Are Greatly Exaggerated ” – CFA Institute Is active equity primed for outperformance? Jason Voss examines the evidence for the CFA Institute, highlighting the work of Russ Wermers and others. A new golden era of active equity is upon us, writes Voss and C. Thomas Howard. In this article, Voss and Howard start by addressing the issues of active vs passive investing and detail the evidence of the return to superior active performance. "The more stocks are held by passive investors, Russ Wermers demonstrates, the more informationally inefficient markets become and the greater the opportunities for active managers." ...

4 Sources of Edge for Active Managers

By AMC Blog posted 05-17-2021
by Simon Hallett, CFA Vice Chairman Harding Loevner Having a structured process is still the key to enabling better investment decision-making. People are deeply flawed when it comes to making investment decisions. It is vital for active investment managers to be aware of their own behavioral defects as humans and counter these shortcomings with process. Good active managers must be able to identify their “sources of edge,” the characteristics that enable them to generate sustainable alpha. Read full post >

What We’re Reading Now

By AMC Blog posted 04-07-2021
Stockpickers Can Breathe Again as FANGs Stumble – Bloomberg John Authers, a journalist who is generally skeptical of active management suggests the recent market turbulence has spurred a revival for active fund managers but questions how long it can last. “Stockpickers need dispersion … As we have seen of late, dispersion has been its highest since the global financial crisis, and it remains above its long-term average … This has indeed translated into a spectacular change in active managers’ fortunes. In February, 72% of U.S. active managers beat their benchmark, according to BofA. Among growth managers, an amazing 94% beat the growth benchmark, ...

Accurately Measuring the Success Rate of Active Funds

By AMC Blog posted 01-25-2021
Any assessment of the value of active management starts with a measurement of its success in generating returns for investors. However, some well-known measures used to assess active managers’ performance present an overly negative assessment of active managers’ skill, explains Rethinking Survivorship Bias in Active/Passive Comparisons , a research brief from the Active Managers Council (2020). The brief takes a close look at the methodology of Morningstar’s Active/Passive Barometer. Published semiannually, Morningstar’s Barometer plays a critical role in determining public perception of active management because of its extensive media coverage. The Barometer ...

Getting Proactive on ESG: 5 Tips for Advisers

By AMC Blog posted 01-07-2021
Environmental, social, and governance: three factors that have become the focus of attention in the investment world. But where is the investment industry when it comes to incorporating the ESG factors into client portfolios? “What we’re seeing at Natixis is that there’s a big disconnect between clients and advisers when it comes to ESG,” summarized Dave Goodsell , Executive Director of the Natixis Center for Investor Insight. “Eight in ten investors tell us that they want their assets to align with their personal values, yet only 9% of the advisers we spoke with in the U.S. this year said their clients are invested in ESG.” Goodsell was speaking on December ...

The Success Rate of Passive Funds

By AMC Blog posted 12-22-2020
The Success Rate of Passive Funds Morningstar’s Active/Passive Barometer does not provide a success rate for passive funds, but the exercise of estimating one provides additional insights into the Barometer’s methodology and the success rate of actively-managed funds. In our recent research brief “Rethinking Survivorship Bias in Active/Passive Comparisons,” the Active Managers Council reviewed the methodology of the Morningstar’s Active/Passive Barometer, focusing on its approach to survivorship bias adjustments. We concluded that the Barometer’s methodology resulted in an overly negative assessment of active manager’s skill, and we proposed an alternate ...

Passive Investing’s Past Performance Problem

By AMC Blog posted 11-18-2020
Investors may be surprised at just how much price risk is embedded in today’s benchmark indices. By Simon Hallett, CFA, Co-Chief Investment Officer, Harding Loevner A couple of months ago, Exxon was summarily dropped from the Dow Jones Industrial Index, after having been included in the index since its inception 92 years ago, to be replaced by software giant salesforce.com. Exxon’s deletion, in itself, was not a big deal for investors. Despite its iconic place in the investor psyche, the Dow is not a great proxy for the broad U.S. stock market or widely used as a benchmark for investing. But that a company once as dominant as Exxon could see its ...

Research Spotlight | ESG Ratings At Best a Starting Point for Active Analysis

By AMC Blog posted 11-06-2020
The Bottom Line : Differences in ESG ratings highlight that sustainable investing must be active to be successful. This is the conclusion of a study by Dimson, Marsh and Staunton, the authors of “Triumph of the Optimists”, and well-respected academic observers of investment theory and practice. The Study : “Divergent ESG Ratings” by Elroy Dimson (of Cambridge University’s Judge Business School) and Paul Marsh and Mike Staunton (both of the London Business School). Published in the Journal of Portfolio Management in November 2020. The Process : The study examines the ESG ratings from three providers (FTSE Russell, Sustainalytics, and MSCI) for six large ...

What We’re Reading Now – ESG Assets Flowing into Active Funds

By AMC Blog posted 10-30-2020
Broadridge Research: Active Asset Managers Can Meet Rising Demand with New ESG Solutions A new report from Broadridge Financial Solutions suggests that “many aspects of ESG investing lend themselves to active approaches” including the management of non-transparent risks, the ability to reduce or eliminate holdings, and identifying forward-looking opportunities when outcomes cannot be detected easily with current and historical data. This tracks with findings from a recent paper, “ Sustainable Investing is an Active Process ” from the Active Managers Council. The paper explores this topic in great detail, arguing that the traditional fully active approach ...

What We’re Reading Now

By AMC Blog posted 09-21-2020
Active Equity Investors Outperform Market And S&P 500 in Q2 – Financial Advisor Magazine Active equity fund investors outperformed equity index fund investors and the S&P 500 in the second quarter, and they also withdrew less assets than their peers, according to a recent Dalbar analysis. “The average active equity fund investor outperformed the average equity index fund investor by 223 bps in the second quarter (20.97% for active versus 18.74% for index),” the Massachusetts-based financial data company reported. "We're not surprised that investors are coming back to active management in uncertain times,” said Karen Barr, President & CEO, ...

Dispersion of Sustainability Ratings Highlights Active Nature of ESG Investing

By AMC Blog posted 08-13-2020
A new report from the Active Managers Council illustrates that sustainable investing inherently involves active decision-making. Take for example the dispersion of sustainability ratings. The paper found that ratings from different providers can seem to have little connection with each other, as the below scatter diagram illustrates. It plots MSCI ESG ratings of 518 companies against ratings for the same companies from JUST Capital. Data: MSCI and JUST Capital ratings available online on May 28-29, 2020. The most compelling evidence for the subjective nature of the ESG investment process is the dispersion of the sustainability ratings ...

What We’re Reading Now

By AMC Blog posted 07-15-2020
Client-Centric ESG Investing Needs to Be Active, White Paper Asserts – Financial Advisor According to the AMC’s most recent white paper, “ Sustainable Investing is an Active Process ,” advisors who want to deliver client-centered ESG to investors “inherently” need to use active management, writes Financial Advisor. The traditional fully-active approach allows for a more nuanced consideration of quantitative and qualitative factors, which helps investors tailor their portfolios to their sustainability goals. “Passive funds tend to use the flavors offered by MSCI’s ESG indexes and rely heavily on ESG ratings from providers such as Facebook, Apple, and ...

Sustainable Investing is an Active Process

By AMC Blog posted 06-30-2020
Sustainable investing is experiencing strong growth, both in assets under management and in investor acceptance. Total U.S.-domiciled assets under management using sustainable investing strategies rose from $8.7 trillion at the start of 2016 to $12.0 trillion at the start of 2018, a 38% increase. [1] At the same time, interest in passive investing has also been increasing, and it’s not surprising there has been a movement to combine the two approaches. Both traditional active approaches and the newer hybrid approaches assess the importance of sustainability issues and how firms are managing the risk posed by these issues. However, the two approaches use very ...

What We’re Reading Now

By AMC Blog posted 05-20-2020
Fidelity: Amid Pandemic, Advisors Rebalance, Look at Active Investments – Barron’s Fidelity recently surveyed 468 advisors and found 41% of financial advisors were looking to increase clients’ allocations of active investments. Fifty-seven percent planned to increase exposure to U.S. stocks. When advisors made changes to client portfolios, the No. 1 reason was rebalancing. "Advisors are taking a proactive approach to managing client portfolios through a big crisis. In times of volatility, advisers lean on active management to manage through those cycles, especially when you hit inflection points in the business cycles," commented Matt Goulet, SVP in portfolio ...

Postponed Rebalancings Highlight Active Nature of Passive Investing

By AMC Blog posted 05-04-2020
Active is active, and passive is passive, and never the twain shall meet? Although the financial press seems to draw a sharp line dividing the two approaches to investment management, the underlying reality is much more nuanced. Passive management has many elements of active decision making, whether during the index design process or discretionary decisions made around rebalances. The recent decisions by index providers to postpone index rebalancings only highlight the commonality between passive and active management. For example, on March 13, S&P Dow Jones Indices announced that it would postpone the first quarter rebalancing of their equity indexes, ...

The Active Advantage in Times of Market Volatility - in Two Charts

By AMC Blog posted 04-24-2020
Active managers have outperformed passive indexing over the last 20 years, with highest excess returns during years of elevated volatility, according to a new study published by AMG. Their new study, in part demonstrates that active managers - boutiques and non-boutiques - meaningfully outperformed passive indexing in periods of elevated volatility. AMG’s proprietary study of institutional equity strategy returns and market volatility data for the trailing 20-year period ended December 31, 2019 demonstrates that independent boutique managers and non-boutiques generated additional value for clients, relative to indices during periods of elevated volatility. ...

What We’re Reading Now

By AMC Blog posted 04-13-2020
Active managers: Market turmoil provides opportunities to shine – Pensions & Investments Active equity managers buy growth and value, or so reports Pensions & Investments. “Despite growth managers' performance edge in the tumultuous prior quarter, active value-oriented managers aren't idle.” Regardless of style, the current market volatility presents a challenge, but also opportunity for active managers. "The path forward has so many rabbit holes that it's hard to predict when the market will hit bottom and recovery will begin, but significant volatility allows active managers to take advantage now of dislocations," said Christopher M. Riley, partner ...

Active Management in Times of Market Turmoil

By AMC Blog posted 04-01-2020
Even before the markets tumbled in March mainly due to the impact of Covid-19, pundits suggested 2020 would usher in an environment that would favor active managers. So, it’s natural in the midst of heightened volatility that investors’ eyes would turn toward active management to ask – are active managers outperforming during the crisis? Indeed, there are early signs that active managers are doing well in this time of market turmoil as noted by Bloomberg in “ Once Again, It’s During a Stock Rout That Active Managers Shine . ” And many pundits theorize active managers are likely to outperform during periods of volatility – as explained by S&P Global in ...