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Manager Selection, Deselection, and Termination

Mark Anson
The Journal of Portfolio Management Manager Fund Selection 2020, jpm.2020.1.137; DOI: https://doi.org/10.3905/jpm.2020.1.137
Mark Anson
is the chief executive officer and CIO of Commonfund in Wilton, CT
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Abstract

Selecting active managers has been a topic of keen debate for years. Many investors have decided to throw in the towel and allocate only to passive mandates. Yet, alpha is available, although it remains a scarce resource. The key to active manager selection is not only to identify good managers but also to know when to terminate managers and when to deselect them. This article explores the ways to identify good managers and avoid bad managers and provides some guidance as to when to terminate those active relationships.

TOPICS: Manager selection, mutual fund performance, equity portfolio management

Key Findings

  • • Many active managers are actually hidden index trackers, hugging benchmarks and providing little active alpha generation.

  • • Crowding and momentum are linked and indicate a lack of active manager skill.

  • • Active managers tend to flock together with respect to fees rather than justifying their costs based on sustained alpha generation.

  • • Frequent hiring and firing of active managers by asset owners may result in reduced returns to the portfolio.

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The Journal of Portfolio Management: 47 (3)
The Journal of Portfolio Management
Vol. 47, Issue 3
February 2021
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Manager Selection, Deselection, and Termination
Mark Anson
The Journal of Portfolio Management Feb 2020, jpm.2020.1.137; DOI: 10.3905/jpm.2020.1.137

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Manager Selection, Deselection, and Termination
Mark Anson
The Journal of Portfolio Management Feb 2020, jpm.2020.1.137; DOI: 10.3905/jpm.2020.1.137
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  • Article
    • Abstract
    • SOME INITIAL EVIDENCE ON HIRING AND FIRING ACTIVE MANAGERS
    • INVESTMENT GOVERNANCE: A DECISION TREE FOR TERMINATING AN ACTIVE MANAGER
    • THE OPPOSITE OF STYLE DRIFT: STYLE CLUSTERING
    • A DIFFERENT TYPE OF CLUSTERING
    • MOMENTUM AND CROWDING
    • USING RISK CLUSTERING PROACTIVELY
    • HIDDEN INDEX PROVIDERS
    • CONCLUSION
    • ADDITIONAL READING
    • ENDNOTES
    • REFERENCES
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