Active managers struggle to outperform
Less than half of active investment managers that outperform over a three year period will be able to match the result over a subsequent period, according to a new research report.
The research into manager persistency, released yesterday by index manager State Street Global Advisers (SSgA), covered the Australian equity, international equity and listed property trust (LPT) sectors.
The analysis, which used William M. Mercer data to measure performance since 1992, found that year on year, the majority of managers in each of the three asset classes beat their performance threshold - defined as index return plus a margin of 1.0 per cent per annum for equities and 0.60 per cent for LPTs.
However, it found that of the managers who beat the performance threshold in a given three year period, only 43 per cent were able to repeat the performance in the subsequent three year period.
The research also found that over the entire period since 1992, the ability of managers to add value above State Street’s chosen benchmark was modest across all asset classes, with Australian equity managers adding the most at 0.7 per cent per annum above the performance threshold.
International equities managers came in with a further 0.4 per cent per annum above the performance threshold, while LPT managers managed to only add 0.1 per cent above expectations.
SSgA product engineer Jonathan Shead said the research showed results have generally been stronger over the five years to June 30 2004 than over the preceding five year period.
According to SSgA Australia chief investment officer Lochiel Crafter, the research backed up the trend for larger institutional investors to use passive or enhanced strategies, rather than pay “average” active managers to produce after cost returns broadly in-line with the index.
Crafter said investors should be sure they get what they pay for from active managers, namely a manager that consistently adds value over the longer term.
But Crafter said this wasn’t always easy as “active [management] is a hard game”.
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