New Top 5 announced in industry’s leading skill-based portfolio manager ranking.
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Essentia’s Behavioral Alpha® Benchmark ranking recognizes active equity portfolio managers who have demonstrated superior investment decision-making skills in a 36-month period. Using our proprietary, peer-reviewed Behavioral Alpha Benchmark methodology, the ranking considers the value added (or destroyed) by individual investment decisions, rather than traditional performance-based metrics derived from historical returns (and thus subject to the random effects of luck).
The Behavioral Alpha Award is conferred annually at each calendar year-end (see the 2022 award winners here); with interim rankings computed each quarter.
The most recent assessment concluded on December 31, 2023 and measured the demonstrated skill of 116 portfolio managers in seven key decision types: stock picking, entry timing, sizing, scaling in, size adjusting, scaling out and exit timing. Each decision type was isolated and its impact on the portfolio was measured using decision attribution analysis techniques we have developed in conjunction with hundreds of portfolio managers over the past ten years.
Managers were assigned a Behavioral Alpha Score based on the hit rate (percentage of decisions that added value) and payoff ratio (the ratio of value added by the average good decision to the value destroyed by the average bad decision) for each decision type.
The five highest-scoring managers, represented by the magenta dots, are those towards the upper-right on this frontier diagram — furthest away from 0,0.
The five managers with the highest aggregate scores across all decision types are recognized as winners of the Behavioral Alpha Award, and are as follows:
| Rank | Manager(s) | Portfolio (Benchmark) |
| 1 | Mark Sherlock Henry Biddle Alex Knox Michael Russell |
Federated Hermes – U.S. SMID Fund (Russell 2500) |
| 2 | Guy Lakonishok Josef Lakonishok Puneet Mansharamani Greg Sleight Menno Vermeulen |
Harbor Capital Advisors/LSV Asset Management – Mid Cap Value Fund (Russell Midcap Value) |
| 3 | Waldemar Mozes Jonathan Brodsky |
Harbor Capital Advisors/Cedar Street Asset Management – International Small Cap Fund (MSCI EAFE Small Cap) |
| 4 | David Schuster |
Brown Advisory – Small-Cap Fundamental Value Fund (Russell 2000 Value) |
| 5 | Andrew Hall Emily Roberts |
Invesco – Global Equity Fund (UK) (MSCI ACWI) |
“We’re excited to be a 2023 Behavioral Alpha Award winner,” says Mark Sherlock, lead portfolio manager of the top-ranked Federated Hermes U.S. SMID Fund. “We apply a great deal of discipline to our investment decision-making process, and it’s very rewarding to see that recognized with this award.”
“The last three years have been an extremely challenging period for active equity fund managers of all types,” says Essentia Founder and CEO Clare Flynn Levy. “The managers in our Top 5 demonstrated a steady hand in managing client assets, adding measurable value through their actual decision-making. In the end, that is what investors are paying for.”
Highlights of the 2023 Essentia Behavioral Alpha Awards:
- Three of the winning managers — including the number-one ranked team of Mark Sherlock, Henry Biddle, Alex Knox and Michael Russell at Federated Hermes — are appearing in the Top 5 for the first time. The other new winners are David Schuster at Brown Advisory, and Andrew Hall and Emily Roberts at Invesco.
- Cedar Street’s Waldemar Mozes and Jonathan Brodsky extended their Top 5 streak to five straight quarterly assessments, with the LSV team right behind them at four straight Top 5 finishes. This “stickiness” aligns with Essentia’s latest research, which finds that investment decision-making skill is persistent — past skill tends to indicate continued skill in the future.
- This quarter’s first-ranked team at Federated Hermes had an overall decision hit rate of 44% and a decision payoff ratio of 236% — for a combined Behavioral Alpha Score of 64.3. In other words, while only 44% of their decisions added value, those that did added 2.36x as much, on average, as their bad decisions destroyed.
- In fact, only 31% of managers in the assessment had a decision hit rate above 50%, but this was an all-time high for the Behavioral Alpha Benchmark rankings: more managers than ever got more decisions right.
- Meanwhile, there was a decline in portfolios with a positive (i.e., > 100%) decision payoff ratio, from 68% to 63% — an all-time low.
- Overall, for the fourth consecutive quarter, more than half of participating managers had Behavioral Alpha Scores over 50 (i.e., added value through their decision-making compared to their benchmarks on a trailing three-year view). Across all decision types, 53% of managers made decisions that had a positive impact on performance during the 36-month analysis period.
Aggregate trends from our prior rankings:
| Percent of portfolios adding value |
Percent of portfolios with a hit rate over 50% |
Percent of portfolios with a payoff over 100% |
|
| Ending 2023-Q4 | 52.5% | 30.8% | 62.5% |
| Ending 2023-Q3 | 53.3% | 24.4% | 67.8% |
| Ending 2023-Q2 | 56.5% | 28.2% | 71.8% |
| Ending 2023-Q1 | 63.6% | 28.4% | 79.5% |
| Ending 2022-Q4 | 46.7% | 23.3% | 63.3% |
| Ending 2022-Q1 | 43.4% | 18.4% | 68.4% |
About Essentia Analytics
Essentia Analytics is the leading provider of behavioral data analytics services to professional investors and allocators of capital. Led by a team of experts in investment management, technology and behavioral science, Essentia combines next-generation decision attribution analytics technology with human coaching to help both equity fund managers and allocators identify investment skill and bias — and capture performance that was previously being lost to decision-making deficiencies.
To contact Essentia about participating in the Behavioral Alpha Benchmark/Award or using the methodology for manager assessment, please complete the form below.
