Smaller managers outperformed their larger counterparts
across most major strategies over the last decade, according to
a report from financial data provider eVestment.
The study, which tracked U.S. equity, fixed-income and
global multi-asset strategies over one-, three-, five-, and
seven-year periods between 2006 and 2016, found that small
managers earned the highest returns in nearly every strategy
over most time horizons. They also performed the best in down
markets, according to the July report.
Equity strategies were generally top performers for small
managers, which produced top returns across almost every
strategy evaluated by eVestment, including U.S. small- and
large-cap core, growth, and value funds. Their most dominant
strategy was large-cap value equity, reporting the highest
returns, the least volatility and lowest downside
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Across U.S. equities, performance tended to decline as
assets under management expanded: the typical small manager
bested the average medium-sized manager, which earned higher
returns than the typical large fund. In large-cap value equity
strategies, for example, small managers were the top performers
71.4 percent of the time over five-year periods, while large
managers won 14.3 percent of the time, the report shows.
Only in large-cap growth equity did large managers topple
smaller peers in average returns, outperforming them over
three-, five-, and seven-year horizons, according to the
report. Large managers also showed the least volatility and
best downside performance among small-cap equity
Fixed-income strategies were more of a mixed mag, with large
managers earning the highest returns in core fixed income while
small managers performed best in core-plus strategies that
involve more risk for potentially higher returns. High-yield
was won by medium-sized managers those with assets under
management in between the 60th and 90th percentile.
Still, small fixed-income managers performed the best across
the board in down markets, and suffered the least volatility in
core and high-yield strategies.
The only strategies that small managers performed poorly in
across every metric were hedged tactical asset allocation
strategies. These global multi-asset strategies were the domain
of medium-sized managers, which earned the highest returns and
performed best in down markets across most time horizons.