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"What to look for in an active investment manager"
An interesting article in the "Wealth Matters" section of the March 30, 2012 online New York Times. Not sure how to place a link here. Seems to suggest that managed ETF portfolios are the way to go.
Not sure what you're seeing in the article that suggests managed ETF portfolios, but let me address (or at least highlight) some items in the article.
The article starts by saying that the question of active vs. passive is the wrong question; that the right one is can you pick a good manager. I both disagree and agree. Disagree because if it is impossible to beat the market - if all managers do better or worse because of random luck, statistical variation - then there is no such thing as a good manager, and thus how to pick one is the wrong question.
The Barclays report, rather than addressing this threshold question, assumes that the question has already been answered - that there is such a thing as good managers (or good investors). It goes on to describe and justify an approach to selecting good managers. (So in this sense, the whole article tends to avoid the question of how to use index funds or ETFs altogether; however building a "managed" portfolio of ETFs would seems to suggest that one can beat the market - else the managing would be futile. But if managing adds value, why avoid it by using ETFs - a question for another day, another post.)
The approach suggested is somewhat similar to the new M* analyst ratings - though there are still significant differences. The Barclays approach is: - look at investment process (it talks about interviewing managers, understanding how they're investing), i.e. M*'s process pillar - organizational structure - not described in article, but likely maps somewhat to M*'s parent and people (e.g. analyst support) pillars - past returns - M*'s performance pillar - due diligence (pass fail) - doesn't map
Interestingly, the one pillar of M* that is left out by Barclays is the one most clearly shown to correlate with performance - price, i.e. expense ratio. Unless that is part of due diligence?
Comments
Regards,
Ted
http://www.nytimes.com/2012/03/31/your-money/what-to-look-for-in-an-active-investment-manager.html?_r=1&ref=business&pagewanted=print
The article starts by saying that the question of active vs. passive is the wrong question; that the right one is can you pick a good manager. I both disagree and agree. Disagree because if it is impossible to beat the market - if all managers do better or worse because of random luck, statistical variation - then there is no such thing as a good manager, and thus how to pick one is the wrong question.
The Barclays report, rather than addressing this threshold question, assumes that the question has already been answered - that there is such a thing as good managers (or good investors). It goes on to describe and justify an approach to selecting good managers. (So in this sense, the whole article tends to avoid the question of how to use index funds or ETFs altogether; however building a "managed" portfolio of ETFs would seems to suggest that one can beat the market - else the managing would be futile. But if managing adds value, why avoid it by using ETFs - a question for another day, another post.)
The approach suggested is somewhat similar to the new M* analyst ratings - though there are still significant differences. The Barclays approach is:
- look at investment process (it talks about interviewing managers, understanding how they're investing), i.e. M*'s process pillar
- organizational structure - not described in article, but likely maps somewhat to M*'s parent and people (e.g. analyst support) pillars
- past returns - M*'s performance pillar
- due diligence (pass fail) - doesn't map
Interestingly, the one pillar of M* that is left out by Barclays is the one most clearly shown to correlate with performance - price, i.e. expense ratio. Unless that is part of due diligence?