Can independent active firms claim alpha from volatility?

New study offers proof of an active advantage over passive indexing due to asset dispersion opportunities

Can independent active firms claim alpha from volatility?

As the coronavirus pandemic has ushered in a new wave of selloffs and market volatility, most members of the asset management industry are struggling. But one group may be poised to come out ahead.

A new study from global asset management company Affiliated Managers Group concludes that, compared to passive managers and non-boutique active firms, independent active boutique managers have outperformed in periods of heightened volatility over the past 20 years.

“The unprecedented volatility in the market today is prompting investors to consider whether they can afford to take a passive approach to managing their portfolios,” said AMG President and CEO Jay C. Horgen. “We believe that active management plays an important role in client portfolios at all times, but now more than ever.”

According to the study titled The Independent Boutique Advantage in Volatile Environments, alpha-oriented boutique investment firms delivered an average of 241 basis points of net excess returns over their relative indexes in periods of elevated volatility.

That outperformance was observed across 11 equity product categories during times of turbulence. In all other periods, independent boutique firms generated alpha amounting to 82 basis points on average over their indexes.

The study found that boutiques outperformed non-boutiques in 10 out of 11 equity product categories by an average of 116 basis points during periods of high volatility, and by 41 basis points in all other periods.

“[T]he dispersion of excess returns across all levels of heightened volatility suggests that extreme market disruption is not the only environment in which boutiques generate alpha,” the study said. “In fact, any above-average levels of volatility provided greater asset dispersion and enhanced opportunities for the best active managers to generate outperformance.”

AMG noted that independent active boutique investment firms are best positioned to produce consistent excess returns over the long term because of several characteristics, including:

  • Principals’ significant, direct equity ownership that allows alignment with clients’ interests;
  • A multi-generational management team that’s fully engaged across the business;
  • Investment independence and operational autonomy, which foments an entrepreneurial culture and partnership orientation;
  • Investment-centric organizational alignment; and
  • Principals’ commitment to building an enduring franchise.


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