Active management

Water Cooler Investing
#1

Hi guys.

I need to do some research on the best active managers for a couple of different asset classes (global equities, alternative investments, fixed income etc). Since we’re an indexing shop, I’ve never dealt with this before and don’t know where a good start would be. Anybody knows a good source of info on this?

Thanks!

#2

Evestment alliance is a database commonly used by investment consultants to research investment managers. Morningstar might be another place to look. How do you plan to define “best active managers”? That’s a very subjective term.

#3

How best active managers are defined, it’s still something that needs to be decided. This is something done for a particular client and one of the limits is that maximum drawdown of the fund during crises can’t be too big. Also, I’d like to be able to identify if the manager/funds performance does not come from concentration of one asset that has outfperformed, but more due to methodology applied.

Thanks for the answer, I’ll look into Evestment alliance.

#4

Generally the metric for active management is either alpha, or the information ratio, which I tend to think of as an analogue to the Sharpe ratio that measures performance against a benchmark, rather than the risk-free rate.

But if you have issues like drawdown size to consider, then you may want to group information ratios by realized historical drawdowns and then pick a kind of “best in class” for whatever level of drawdown your client decides is acceptable. You could do something similar with realized alphas if the risk adjustments requried for calcualting information ratios are not considered all that important.

Ultimately, the problem is that alpha, information ratio, and drawdown sizes still need to be forward looking, so probably the best way is to start with the historical levels and then try to think critically about whether those numbers are likely to be larger, smaller, or about the same given what the future looks like.

Morningstar does seem to be the main compendium for fund data. You might also look at the major fund/ETF groups (Vanguard, iShares, etc.) and see who they compare themselves to.

#5

I could tell you how to do it in five minutes if you have Morningstar Direct or Zephyr. Without those - or Evestment - you’re going to have a long haul ahead of you.

Drawdown is a commonly used metric for Alts and the Global Allocation space since finding an appropriate benchmark is nearly impossible. I’ve seen an increased weight being placed on max drawdown in the fixed income world too, especially after so many bond funds blew up in 2008 (when clients really needed them to perform well). But, IR is still widely used in the FI world.

I don’t really know of any free databases that can assist you. Sorry. I know that in the Global Allocation space you’re going to be looking at Blackrock Global Allocation, Ivy Asset Strategy, and First Eagle Global. Those are, hands down, the best.

In fixed income everything starts with PIMCO. Fixed income is a large universe though, so depends on what sector you’re looking at. Doubleline, Met West, Oppenheimer, and Dodge & Cox are all very popular across the board.

I’d need way more info on the alt space before being able to direct you anywhere. Managed futures, long/short equity, long/short debt, merger arb, etc…

#6

Yeah, I know it’s a big universe and a vague request. Besides that I’m in Canada. I’m tackling this the old way, I understand a paid service makes a whole lot of difference.

Thanks everybody for comments and suggestions.

#7

You should use rolling time periods so that alpha isn’t dramatically influenced by what has worked over the past few years. A manager could look great vs. their benchmark just because the type of stocks that they prefer happened to have had a good run over the past couple of years.

For example, right now a lot of fundamental equity managers with a quality bias look like sh!t because of the low quality rally in 2009-10 and risk on/risk off over the past year.

Morningstar Direct would make this a hell of a lot easier. Morningstar’s website has a lot of info available for very low cost (like $125 per year). I don’t know how hard it would be to pull this sort of data off the website because I use MS Direct.

#8

Yea the junk really rallied fast in that 09 timeframe, quality definitely underperformed

#9

iteracom, that is usual in a recovery, from what I’ve been reading. now some might say there is not really a recovery but on the other side the govt was extra agressive in easing the monetary policy.