Thursday, August 10, 2006

Persistence of Manager Alpha

Mercer has published a practitioner study on the Persistence of Manager Performance. It concludes that the quest for good managers defined by past superior returns vs peer medians will invariably yield a high percentage of managers who underperform in subsequent periods. The author conjectures that the cyclical behavior of substyles within a mandate ( ie GAARP vs momentum) are more likely drivers of superior results than manager skill. These findings lead to the thought that investors might be better served finding good managers with poor recent track records (Bill Nygren, John Rodgers, Charlie Driefus anyone?). The study concludes that benchmark out-performance may be more persistent than peer universe out-performance. This may align with academic studies suggesting that momentum effects can drive short term performance persistence (1 yr).

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