AQR Says Active Bond Fund Returns Juiced by Junk

Researchers at AQR Capital Management say that active bond fund managers are beating benchmarks by “loading up on junk bunds to juice returns.” This according to a recent Bloomberg article. “Since the category is closely linked to equities, that’s stripped away the diversification benefit bond funds normally provide,” the article states. The AQR study, which focused on several different fixed income categories, found that excess returns are highly correlated with junk bond markets. The researchers… Read More

REIT Outperforms Through Active Management

As active stock managers continue to face competition from low-cost index funds, some firms have managed to outperform benchmarks by using “specialized expertise and fundamental research in sectors like real estate and energy,” according to an article in Institutional Investor. The article cites the example of Cohen & Steers, a firm that has managed real estate investment trusts since the 1980s, which is “beating index fund rivals as many have been hit hard by problems… Read More

Ariel’s John Rogers Defends Active Management

Before becoming the founder and chairman of Chicago-based Ariel Investments, John Rogers Jr. was a varsity basketball player at Princeton University and a winner at both Wheel of Fortune and Warren Buffett’s NetJets Poker Invitational in Las Vegas. This according to a recent Barrons article. During a recent interview with Barrons, Rogers said, “I worry that our industry hasn’t done an effective job of defending itself and showing the value that is added by active… Read More

Active Management is Alive and Well

An article in last month’s Enterprising Investor outlines some interesting insights into how active management is “alive, thriving and adding value across trillions of dollars of assets worldwide.” The author cites research showing that “focused” active managers—those specializing in certain asset classes, sectors, etc.—can outperform index funds. One example cited is that of smaller, earlier-stage companies where “the dispersion of returns is wide and failure rates can be high.” The article references a study showing… Read More

Has Trump Resurrected Active Management?

Hedge fund manager Dan Loeb believes the current environment is “undoubtedly better for active investing—just as active investing was considered to be on its deathbed,” according to an article on last week’s CNBC.com. Third Point’s Loeb argues that higher rates will create opportunities for active managers, “reversing the one-way trade in yields that dampened the past few years.” He cites Trump’s promises to cut taxes and regulations as potential causes for the shift. The article… Read More

Active Investors Get a Chance to Shine

From the investor’s standpoint, a low level of unemployment isn’t necessarily good news, says a recent Bloomberg article. However, it can bode well for active versus passive investors. When more people are working, it says, “Wage growth can exceed economic growth, putting pressure on corporate profit margins. Interest rates can rise, tightening financial conditions. Inflation can rise, putting more pressure on central bankers to remove liquidity from the system.” For active investors, however, it presents… Read More

Low Cost and Know-How Key to Active Management Success

In an interview with Morningstar, Vanguard’s Daniel Wallick shares his perspective on how investors can successfully use active management. With respect to investors becoming “a bit disillusioned” when they see the success rates of active versus passive benchmarks, Wallick argues that costs should be a primary consideration. “Lower cost funds,” Wallick says, “by and large do better than higher-cost funds. Now that alone does not guarantee success even with active funds, but it is the… Read More

Greenblatt Weighs in on Active Management

“Most people have a tough time sticking with active managers who underperform for a period of time. But of course, if you’re going to beat the market, you have to do something different than the market. And active managers will zig and zag differently,” explains Joel Greenblatt, founder of Gotham Asset Management, in a recent interview with Morningstar. Greenblatt discusses his firm’s disciplined valuation process that uses both absolute and relative value metrics to rank… Read More

Not All Active Managers Created Equal

As investors continue to divert dollars from actively managed funds to lower-cost passively managed index funds, research conducted by two finance professors at Pace University has revealed an interesting finding, according to last week’s Wall Street Journal. The study found that diversified emerging-markets funds that are actively managed are more likely to outperform their less actively managed peers as well as index funds. Matthew Morey and Aron Gottesman, finance professors at Pace University’s Lubin School… Read More

A To-Do List for Active Managers

A new book entitled Winning at Active Management: The Essential Roles of Culture, Philosophy, and Technology, co-authored by William Priest, CEO at Epoch Investment Partners, addresses the reasons behind the difficulties active managers are facing as well as some strategies they can use to overcome them. An excerpt of the book was recently published in Barron’s. It argues against the notion that recent underperformance indicates efficiency of the markets. Instead, it suggests that active managers… Read More