We are pleased to release the Verus 2024 Active Management Environment, which can be accessed with the link below.
What changed for 2024?
- The past year showed a resilient macroeconomic environment, as risk-assets performed well in the face of slowing economic growth driven by tightening monetary policy across most developed-economy central banks. Inflation continued to move lower as the year progressed, allowing central banks to communicate to the world that rate cuts are likely forthcoming, providing a tailwind for risk-assets. All major asset classes outside of commodities finished the 2023 calendar year with positive returns, an inverse from what investors experienced during 2022.
- While positive performance visibly lifted active manager performance over the 3-year period, large losses of 2022 remain a net drag across the longer 5-, 7-, and 10-year time horizons. This is especially visible across fixed income, as asset classes such as core and core plus experienced historically negative returns during 2022.
- The dispersion of manager returns across universes over the past three years has been notable, driven by significant market volatility. It is often the case that over shorter timeframes active dispersion will be wider. Environments of elevated dispersion are often attractive for skilled active managers to deliver differentiated results to their investors. In this year’s release we see wider active manager dispersion over shorter time horizons, with narrower dispersion over longer lookback periods. It could be argued that recent years represent a regime shift for active managers, relative to the low dispersion bull market that occurred following the 2008-2009 Global Financial Crisis.
- In many active universes we observe that manager outperformance has been accomplished through risk-reduction rather than risk-taking, as managers are often not compensated for taking risk relative to the benchmark. This can be seen in universe shapes that are flat (active managers are, on average, not compensated for additional risk) or worse, are tilted down and to the right (active managers that took more risk than the benchmark underperformed the benchmark, on average).
We hope that the insights from this unique mathematical approach provide a deeper understanding of active manager behavior and assists investors in their selection process. For first-time readers, an introduction to this research and methodological details can be accessed on our website.
We look forward to discussing this research with you.
