Do You Need More than One Manager for a Given Equity Style?

Abstract

Measuring risk the traditional way, as the variability of periodic returns, suggest little benefit to employing multiple money managers within a given investment style category. When risk is defined as end-of-period wealth variability, however, the authors show that the risk reduction benefits can be substantial. Using a sample of mutual funds grouped according to style, they also show that some styles benefit more than others from diversifying across managers. These findings are relevant to selecting and managing a portfolio of money managers, and are worth considering along with factors such as the reduced fee levels that come with placing more assets under the direction of a single manager.