australieen
Institutional asset managers add value... by using factors

Institutional asset managers add value... by using factors

22-11-2017 | From the field

Are factors the future of active asset management? Since many studies have reported that active managers lag their benchmarks after costs, low-cost passive investing is now widely recognized as a winning long-term strategy.

  • David Blitz
    David
    Blitz
    Head of Quant Research

This new paper1 , however, reaches different conclusions. Based on a dataset covering $17 trillion of assets under management, it states that actively managed institutional accounts outperformed their benchmarks by 86 basis points before and 42 basis points after fees over the 2000-2012 period.

A further analysis shows that this outperformance can be fully attributed to exposures to classic factor premiums. The authors suggest that sophisticated investors should be able to obtain these factor exposures in a more cost-efficient manner using dedicated factor strategies. In sum, the paper supports the use of active management, and, in particular, the adoption of an active factor investing approach.

1 Gerakos, Linnainmaa & Morse, “Asset Managers: Institutional Performance and Smart Betas”, SSRN working paper no. 2733147.

Stay informed on Quant investing with monthly mail updates
Stay informed on Quant investing with monthly mail updates
Subscribe
From the field
From the field

Our researchers publish many whitepapers based on their own empirical studies; they also follow quantitative research done by others.

Read all articles

Disclaimer

BY CLICKING ON “I AGREE”, I DECLARE I AM A WHOLESALE CLIENT AS DEFINED IN THE CORPORATIONS ACT 2001.

What is a Wholesale Client?
A person or entity is a “wholesale client” if they satisfy the requirements of section 761G of the Corporations Act.
This commonly includes a person or entity:

  • who holds an Australian Financial Services License
  • who has or controls at least $10 million (and may include funds held by an associate or under a trust that the person manages)
  • that is a body regulated by APRA other than a trustee of:
    (i) a superannuation fund;
    (ii) an approved deposit fund;
    (iii) a pooled superannuation trust; or
    (iv) a public sector superannuation scheme.
    within the meaning of the Superannuation Industry (Supervision) Act 1993
  • that is a body registered under the Financial Corporations Act 1974.
  • that is a trustee of:
    (i) a superannuation fund; or
    (ii) an approved deposit fund; or
    (iii) a pooled superannuation trust; or
    (iv) a public sector superannuation scheme
    within the meaning of the Superannuation Industry (Supervision) Act 1993 and the fund, trust or scheme has net assets of at least $10 million.
  • that is a listed entity or a related body corporate of a listed entity
  • that is an exempt public authority
  • that is a body corporate, or an unincorporated body, that:
    (i) carries on a business of investment in financial products, interests in land or other investments; and
    (ii) for those purposes, invests funds received (directly or indirectly) following an offer or invitation to the public, within the meaning of section 82 of the Corporations Act 2001, the terms of which provided for the funds subscribed to be invested for those purposes.
  • that is a foreign entity which, if established or incorporated in Australia, would be covered by one of the preceding paragraphs.
I Disagree