Highly “focused” investment managers are the winners

An active fund management firm claims that a tight focus on a single asset class, such as equities or fixed income, will significantly outperform other more generalist strategies and can also beat passive funds after fees. Active manager Northill Capital analysed the performance of 5,006 long-only equity and fixed income funds over the five years to December 31, 2015, and found the most focused US equity strategies outperformed by 116 basis points (bps) on average per annum relative to their benchmarks, while the average manager delivered only 2 bps per annum. Northill defines generalists as firms that offer multiple investment strategies managed by multiple teams, each utilising different investment processes and philosophies. The most focused mid-sized active US equities managers generated average annualised outperformance of 146 bps annually, 145 bps more than the average mid-sized manager. The notion that focused active managers outperform was demonstrated in all of the asset classes analysed over the period, said Northill Capital. The study encompassed European equities, US fixed income, global equities and emerging market equities. The report even claims that focused active managers tended to outperform passive mandates after fees, challenging conventional wisdom on the topic. Active US equity strategies offered by the most focused mid-sized managers outperformed by 68 bps, on average, net of fees. However, the report also notes that the average active US equity strategy underperformed passive mandates by an average 18 bps after fees over the past five years. A spokesperson for Northill said the outperformance of focused funds was down to firms having a single, repeatable investment process employed by a single team. Such firms have “nowhere to hide”, as a prolonged period of underperformance puts them at risk; conversely, generalists can incubate track records in multiple asset classes, and out performance in one can balance underperformance in another. The report may offer some comfort to active management’s proponents, as investigations of active vs. passive performance typically conclude the latter vehicles consistently outperform the former. ©2016 funds europe

Sponsored Profiles

SPONSORED FEATURE: Investing for income

May 17, 2017

Portfolio Manager Thomas Kruse examines the findings from Pioneer Investments’ survey on income investing and outlines ways of achieving a target income.

SPONSORED ARTICLE: A radical solution to KYC concerns

May 17, 2017

The 1MDB affair shows that lax know-your-customer and due-diligence procedures are a major risk, says Paolo Brignardello, head of product management and marketing, Fundsquare. New solutions are...

SPONSORED FEATURE: AIFMD - What does Brexit mean?

Apr 18, 2017

An open discussion between funds industry experts and initiated by SGG Luxembourg took place in London to examine  the implications of Brexit for UK fund managers marketing to the EU.

SPONSORED FEATURE: Luxembourg fund reporting – CRS vs FATCA

Apr 18, 2017

Luxembourg funds need clear procedures for CRS compliance, writes Andrew Knight, Partner at M Partners, a member of the Maitland network of law firms.

Executive Interviews

INTERVIEW: Finding managers that can (and do)

Apr 18, 2017

Fabrice Kremer, a fund selector at Banque de Luxembourg Investments, has berated fundamental managers for failing to beat indices, but he remains committed to active funds. He speaks to Nick...

JERSEY INTERVIEW: ‘A steady sort of place’

Mar 21, 2017

The chief executive of Jersey Finance is keen to portray the island as a stable, trustworthy jurisdiction. He talks to George Mitton.

Roundtables

MARKETING & BRANDING ROUNDTABLE: It’s about aspiration

May 17, 2017

With such an intangible product, it can be hard for asset managers to communicate what they do. Having personality and connecting with customer aspirations may be the key, our branding roundtable hears.

ROUNDTABLE: The issue is perception

Mar 21, 2017

Our panel discuss tax transparency, the elegance of private placement and why Jersey could do more to promote itself. Chaired by Tom Cowsill in Saint Helier.