There was a wide variation between the best and worst-performing active managers in the first quarter of the year, according to an analysis by bfinance, with managers focused on the quality investment style performing best in developed markets.
While the top quartile of active managers outperformed in all regions relative to their benchmark indices, the disparity most apparent in global developed markets, with a 42% differential between the top-performing and worst-performing strategies, noted Rob Doyle, bfinance's director of public markets in a webinar attended by 260 investors that took place on Wednesday.
Within global developed markets, the top 25% of active manager outperformed the MSCI World Index by 3.6%, though in emerging markets the outperformance was just 0.9%.
For pan-European active funds, the top quartile outperformance was 4% versus, 3.3% for US funds, 2.6% for Asia excluding-Japan, and just 0.9% for Japanese focused funds.
Looking at investment style, value markedly underperformed across all regions, with high dividend stocks also lagging.
Generally, quality and low-volatility are expected to outperform and show up in down markets, Doyle said, which proved the case through February and March.
Looking at global developed markets, all 'value' characteristics were severely negative as were factors relating to 'high dividend' equities, while 'high volatility' stocks also trailed.
Both 'quality' and 'growth' exposure were rewarded in the quarter, in whichever way a manager might define them, while having a large-cap bias and momentum from 2019 both also performed well in the first quarter.
Managers with the purest portfolio exposure to quality stocks — as defined by bfinance rather that the managers' opinion — performed best in developed markets, averaging nearly an 8% outperformance to their benchmarks.
“Managers focused on 'quality' typically have significant positions in the consumer staples, healthcare and IT sectors, focusing on companies with strong competitive advantages, high levels of cashflow and business models that can, in theory at least, best withstand economic downturns,” Doyle said.
“At the other end of the scale, managers with a dominant 'value' style trailed the benchmark by an average 6.4%. So if your 'value' manager underperformed in Q1 they certainly were not alone.”
Looking at other down markets in history, 'quality' and 'low-volatility' managers have consistently shown their ability to outperform.
“Neither 'growth' nor 'value' managers have typically fared very well in these environments,” he added.
“So arguably that traditional decision between growth and value is becoming less relevant given that investors now have a wide range of other styles to choose from.”
With ESG (environmental, social and governance) investing a big focus for many investors in the past 18 months, Doyle pointed out that the managers with a big a positive tilt to ESG versus the benchmark tend to be in the Quality space.
“A dedicated ESG composite is something weve looked at… ESG is not in and of itself typically considered in the context of a managers broader investment approach, so being factored in alongside other elements.”
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