Tag Archives: active vs. passive

Size Matters for Active Large-Cap Fund Performance

Over the 15-year period ending March 31, 2019, the biggest 25% of active large-cap equity funds managed about 90% of all the assets under management (AUM) held in active large-cap equity funds. This may suggest that investors’ fund selections skew toward larger funds. But is bigger always better? This topic has been widely debated: although Read more […]

For Active Managers, Staying on Top Is Not Enough

S&P DJI’s Mid-Year 2019 Persistence Scorecard may offer a hint of encouragement for active fund managers. Performance persistence, measured over the three-year period ending March 2019, rose from prior periods. Among the domestic equity funds that were in the top quartile as of March 2017, 11.36% were able to go on and maintain their top-quartile Read more […]

Do Active Funds in India Benefit from Higher Active Risk Exposure?

Fund managers typically follow a factor or a style of investing and aim to construct portfolios by balancing active sector exposures and stock-selection risks within a sector. Tracking error is one way to measure a fund’s deviation from its respective benchmark to determine how “active” it is. As measured in the SPIVA® India Year-End 2018 Read more […]

The Importance of Being Large-Cap

The performance of U.S. equity factors during Q2 was lackluster, with most underperforming the S&P 500, as seen in Exhibit 1.  While Minimum Volatility and Low Volatility were notable exceptions, Value, Quality, High Beta, and Momentum all lagged the benchmark – in large part because of their tilt toward smaller companies.  Since most factor indices Read more […]

Uncertainty’s Curse on Confidence

With the dust still settling after the unexpected result of Australia’s recent federal election on May 18, 2019, which resulted in a third 3-year term for the incumbent Liberal-National Party coalition, the Australian government has quickly turned its attention to a slowing in the Australian economy. While the uncertainty over franking credit refunds and negative Read more […]

Are Active Funds Better at Managing Risks? Not Really.

In investing, risk and return are two sides of the same coin; the expected returns of an asset must be accompanied by variation or uncertainty around the outcome of those returns. All else equal, higher-risk assets should be compensated, on average, by higher returns. The same philosophy applies to performance evaluation. The performance of both Read more […]

Risk-Reward Analysis of Selecting Active Managers

Although there seems to be more research on economic forecast and market analysis than manager selection, selecting investment managers is just as challenging as direct investing and requires considerable experience and expertise. In this blog, we investigate the return distribution of fixed income and equity funds to highlight the challenge of successfully selecting outperforming active Read more […]

Buffetted Performance

Tomorrow, Warren Buffett and 30,000 of his closest friends will gather in Omaha for Berkshire Hathaway’s annual meeting.  The loyalty of long-term Berkshire shareholders is the stuff of legend, as is the investment performance that produced it.  $100 invested in Berkshire stock at the end of 1968 would have grown to more than $850,000 by Read more […]

Performance Trickery, part 2

Here is a 22-year history of a (hypothetical) actively-managed portfolio and its benchmark: Results have been decisively mediocre. The portfolio outperformed in only five years out of 22, for a hit rate of 22.7%. Its cumulative return (68.2%) lagged that of the benchmark (74.0%), and its volatility was higher (4.79% vs. 4.25%). The manager’s marketing department Read more […]

Market Conditions Favored Government Bond Funds in Second Half of 2018

The SPIVA® U.S. Year-End 2018 Scorecard shows a reversal of the relative short-term performance of fixed income funds at the end of 2018 from six months prior. Combined with the interest rates move, this might shed some light on understanding the duration positioning of active funds. We focus on government bond funds for our analysis, Read more […]