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Some Like It Hot: The Role of Very Active Mandates across Equity Segments in a Core–Satellite Structure

Frank Nielsen, Giacomo Fachinotti and Xiaowei Kang
The Journal of Investing Summer 2012, 21 (2) 17-26; DOI: https://doi.org/10.3905/joi.2012.21.2.017
Frank Nielsen
is the executive director at MSCI in New York, NY.
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Giacomo Fachinotti
is a managing director at MSCI in Geneva, Switzerland.
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Xiaowei Kang
is a research analyst at MSCI in London, UK.
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Abstract

This article 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. Research based on manager performance data over the last 10 years indicates that there is little evidence that average emerging market or small-cap managers have produced higher or more persistent risk-adjusted returns relative to their developed market large-cap peers. Therefore, institutional investors may consider active and passive management as complementary strategies across all 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.

TOPICS: Emerging, global, equity portfolio management

  • Copyright © 2012 MSCI, Inc. All rights reserved. Not to be reproduced or redistributed without permission.
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The Journal of Investing: 21 (2)
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Some Like It Hot: The Role of Very Active Mandates across Equity Segments in a Core–Satellite Structure
Frank Nielsen, Giacomo Fachinotti, Xiaowei Kang
The Journal of Investing May 2012, 21 (2) 17-26; DOI: 10.3905/joi.2012.21.2.017

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Some Like It Hot: The Role of Very Active Mandates across Equity Segments in a Core–Satellite Structure
Frank Nielsen, Giacomo Fachinotti, Xiaowei Kang
The Journal of Investing May 2012, 21 (2) 17-26; DOI: 10.3905/joi.2012.21.2.017
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  • Article
    • Abstract
    • ACTIVE MANAGEMENT IN DIFFERENT EQUITY MARKET SEGMENTS
    • COMBINING ACTIVE AND PASSIVE MANAGEMENT: A FRESH LOOK AT THE CORE–SATELLITE STRUCTURE2
    • CONCLUSION
    • APPENDIX A
    • APPENDIX B
    • ENDNOTES
    • REFERENCES
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