We are not unconditional advocates for or against active management; investors have different circumstances. However, while there are many logical rationales for favoring index over active investing, the recent performance struggle of the average active manager is not among them.
Conviction in Equity Investing Mike Sebastian and Sudhakar Attaluri, The Journal of Portfolio Management, Summer 2014 Active management helps improve market efficiency through the identification of mispriced securities, but often the benefits do not accrue to individual investors. To maximize returns after fees, the authors argue that investors should either allocate to high conviction managers—measured…
Executive Summary A common perception among investors that employ active equity management is that the “donut” structure—an all-active manager structure often composed of four or more high conviction managers—is more aggressive, more expensive, and riskier than the “core-satellite” structure—which blends active and passive management by adding a large passive core component to the donut—because of…
Valuations, fundamentals, and a more appealing macro picture make tilting emerging markets equity exposure toward Asia a sensible proposition.
Investors should become more enthusiastic about US small-cap stocks when valuations become more compelling. Small-cap valuations today are unusually rich. Our preferred composite P/E ratio indicates the Russell 2000® trades at 33.7 times normalized earnings, about 60% above fair value and in the top 2% of all historical occurrences. Short-term metrics are little more compelling;…
We continue to advise an overweight to Eurozone equities versus US equivalents given attractive relative valuations, greater potential for earnings growth, and tailwinds from the improving macro environment Eurozone equities have performed strongly year-to-date but may have more room to run given valuations and weaker medium-term performance. UK equities have similar valuations but are less…
We are on record advising clients to underweight US equities, as they are overvalued both in absolute terms and particularly relative to non-US markets. That said, we believe strongly in the value of constantly looking for where we could be wrong; thus, we have lately been exploring analyses that make the case for a bullish…
This chart book presents representative marketable and hedge fund manager performance for first quarter 2015. The median Global ex US Small-Cap Equity manager posted the highest return (5.9%) for the quarter; the median manager in this asset class returned -1.6% for the one-year period ending March 31, 2015. The median US REIT manager posted the highest…
Quicksilver Markets Ted Berg, Office of Financial Research, March 2015 Earlier this year, US equity investors celebrated the current bull market’s sixth anniversary and the tripling of prices that accompanied the uptrend. These heady gains have left equity prices high by historical standards. In a recent article, the US Treasury Department’s research arm notes that…
Chinese equities have captured headlines recently, with trading volumes surging in Hong Kong and the MSCI China Index (which tracks the performance of Chinese companies listed in Hong Kong) rising 14% over four trading days (April 8–13). The catalyst was a decision in late March by mainland Chinese regulators to allow domestic mutual funds to…