Active Investment Manager Portfolios and Preferences for Stock Characteristics

Abstract

This study investigates the stock characteristic preferences of institutional Australian equity managers. In aggregate we find that active managers exhibit preferences for stocks exhibiting high price variance, large market capitalisation, low transaction costs, value-oriented characteristics, greater levels of analyst coverage, and lower variability in analyst earnings forecasts. We observe stronger preferences for higher volatility, value stocks, and wider analyst coverage among smaller stocks. We also find smaller investment managers prefer securities with higher market capitalisation and analyst coverage (including low variation in the forecasts of these analysts). We also document that industry effects play an important role in portfolio construction.

JEL Classification: G12, G14, G23