Some Like It Hot
categories: Asset Allocation and Asset Liability Management, RMA, All Country Indexes, Research Paper, NIELSEN Frank, FACHINOTTI Giacomo, KANG Xiaowei, general, RMA, Research Paper, general, NIELSEN Frank, FACHINOTTI Giacomo, KANG Xiaowei, Asset Allocation and Asset Liability Management, All Country Indexes
As part of the MSCI Research series on global equity implementation, this paper reviews the active management opportunity in different market segments, and discusses the role of very active mandates across segments in a core-satellite portfolio structure.
Our research based on manager performance data over the last 10 years indicates that there is little evidence that average emerging markets or small cap managers have produced higher or more persistent risk-adjusted returns relative to their developed markets large cap peers. Therefore institutional investors may consider active and passive management as complementary strategies across these different equity segments.
Due to the outperformance of high active risk mandates over the analyzed period, a simulated core-satellite structure across different equity segments achieved a higher information ratio than a combination of low active risk managers. The outperformance of high active risk mandates may reflect links between higher manager skill, higher investment conviction, and/or fewer constraints. Depending on investment beliefs, institutional investors might explore such a core-satellite structure to implement the global equity allocation.