feedback – Skill Versus Luck

Behavioral Published in Pensions & Investment | February 2024

Written by Michael A. Ervolini

Active Management – Take Down The White Flag

Article Abstract

This article discusses several of the challenges facing active equity management including: the shift from active to passive equities, the emergence of active ETFs, and the downward pressure on active fees. It also offers hope from the potential to improve equity results with the help of stronger feedback. The new analytics described enable asset owners and allocators to have greater conviction in their decisions, while also allowing managers to become more self-aware and improve. For the full text click on the link below.

Three Key Takeaways:

It’s time for equity managers to fight back by generating stronger results more consistently.

Newer analytics now enable managers to become more self-aware and to improve deliberately. These newer analytics quantify skills and analytically describe investment processes, allowing managers to replace guessing with rigorous feedback.

Managers using these analytics are already benefiting – by delivering their best results and maintaining assets and winning new allocations.

SUBSCRIBE FOR FULL ARTICLE

MICHAEL A. ERVOLINI, AUTHOR

The ideas expressed on this website are developed and/or curated by Michael Ervolini. Mike has spent his entire 35+ year career leading efforts to improve and strengthen active management.

RESOURCES

MOST POPULAR ARTICLES

JUDGMENT

WHEN BUYING LOW AND SELLING HIGH DESTROY ALPHA

LEARN MORE

PROCESS

ACTIVE MANAGEMENT – TAKE DOWN THE WHITE FLAG

LEARN MORE

BEHAVIORS

WEAK FEEDBACK AND DENIAL ARE KILLING ACTIVE MANAGEMENT

LEARN MORE

Continue improving with our newest investment insights & articles.

Subscribe to receive our latest articles and news updates

By clicking “Sign up” you agree to our Terms of Service.

ARTICLE

The Journal of Portfolio Management | February 2024

Written by Michael A. Ervolini

2 min read

Weak Feedback And Denial Are Killing Active Management: A Slow Death Perhaps But One That Is Avoidable

Article Abstract

It’s been over a decade since the introduction of analytics that effectively quantify manager skill. Yet there is little evidence that these enhanced metrics are being used by active equity managers, based on the general results of funds versus their benchmarks. Initially it was believed that most managers would eagerly adopt these enhanced analytics and learn to be more self-aware and improve. This belief proved to be overly optimistic. Hundreds of interviews with equity professionals indicates a second roadblock to the much needed turnaround across active management – this one being denial. And while resistance to change is perfectly understandable it is undermining the active management industry. The paper argues that both weak feedback and individual denial are co-contributors to the industry’s lackluster results.

Three Key Takeaways:

Weak feedback long has been a significant impediment to equity managers learning and improving. Newer analytics introduced over the past decade have vastly improved the quality of information now available to managers.

Nevertheless, active equities as a whole continue to struggle. It’s now clear that in addition to the once analytic shortcomings holding back manager success there is also the issue of widespread denial.

One new analytic that can help managers improve is the analytic

assessment of their information advantage. This analytic provides a clear quantification of the alpha generating capacity of the fund’s average new buy.

SUBSCRIBE FOR FULL ARTICLE

MICHAEL A. ERVOLINI, AUTHOR

The ideas expressed on this website are developed and/or curated by Michael Ervolini. Mike has spent his entire 35+ year career leading efforts to improve and strengthen active management.

RESOURCES