Some Like it Hot

Posted: 21 May 2019

Date Written: January 21, 2011

Abstract

As part of the MSCI Research series on global equity implementation, this paper 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.

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

Keywords: MSCI Research series, global equity, implementation, active management, different market segmentscore-satellite, portfolio, structure, manager, performance, datainstitutional investors

Suggested Citation

Kang, Xiaowei and Nielsen, Frank and Fachinotti, Giacomo, Some Like it Hot (January 21, 2011). MSCI Barra Research Paper No. 2011-03. Available at SSRN: https://ssrn.com/abstract=1754027 or http://dx.doi.org/10.2139/ssrn.1754027

Xiaowei Kang (Contact Author)

Standard & Poor's ( email )

London EC2M 7NJ
United Kingdom

Frank Nielsen

MSCI Inc. ( email )

88 Pine Street
2nd Floor
New York, NY 10005
United States

Giacomo Fachinotti

MSCI Inc. ( email )

88 Pine Street
2nd Floor
New York, NY 10005
United States

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