Portfolios run by investment managers with demonstrable research skills add more than 3 per cent of alpha, study finds.
Investment research is the defining factor by which fund managers produce strong returns, a new study has found, underscoring the role of stockpickers as investors increasingly shift to passive portfolio strategies.An analysis of 752 equity investment strategies run by fund managers on behalf of large institutional investors, such as pension funds, found that research – the rigour behind stockpicking – was the overwhelming driver of excess returns.
“If you’re an active equity manager, the core skill they need to display to create ongoing alpha for customers is the ability to identify the stocks to own in the portfolio – that is where the value is created,” said David Goodman, managing director, Asia Pacific, for Inalytics.The study casts a poor view on the trading function, which large asset managers for years have built out to compete in an increasingly complex market structure to try and boost returns.
The study carved the portfolios analysed into those with demonstrable research skills, and those with poor research capabilities. The former group delivered 3.83 per cent in excess returns above their benchmarks, while the latter group suffered negative drag on portfolios of 1.39 per cent.The findings offer a note of support for the practice of stockpicking at a time when it has comeThe data also shows the uses of high-powered analytics that can inform investment management operations.