Speaking to InvestorDaily, AMP Capital head of portfolio management in the firm’s multi-asset group, Debbie Alliston, said US equities is the asset class that lends itself least to active management.
Her comments came in response to recent claims by American indexing proponent Charles Ellis that active management is a “losing proposition” and “not worth the effort” given the vast improvements in efficiency and research since the 1950s.
“If you’re looking at an asset class in isolation, then it is valid to ask yourself whether you think the ability to outperform the benchmark is something that can be done consistently,” she said.
Mr Ellis would likely be approaching the topic from a US bias, said Ms Alliston.
“The US large cap market is very efficient, and [active] managers have over time struggled to consistently outperform the index,” she said.
For precisely that reason, AMP Capital does not chase aggressively active portfolios in the US market, said Ms Alliston.
“We use a more broader enhanced style that looks to add incremental turnover to the benchmark [in that space],” she said.
However, when it comes to other markets – and she listed Australian equities, small caps, emerging markets and credit markets as examples – there is “evidence over long periods of time” that active management can add value relative to an index, said Ms Alliston.
“History support this. Even in Australian equities, if you look over longer term periods even the median manager has outperformed the index on an after-fees basis,” she said.
There is also “no doubt” that some times are more conducive for stock picking than others, said Ms Alliston.
Between 2008 and 2012, AMP Capital’s multi-asset portfolio recognised that active managers were struggling – and as a result, the portfolio became more macro-focused and thematic, she said.
“We dialled it down a bit, and then recogised in 2012 that the opportunities were looking much more attractive … [with] lots of low-hanging fruit,” said Ms Alliston.
While Mr Ellis’s arguments may be “reasonable” in isolation (ie, in relation to a single asset class at a single point in time), “if you take a bigger perspective I don’t think it’s as clear cut as that”, she concluded.
