Top portfolio managers extend win streak, consistent with new research into the persistence of investment skill.
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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, our 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 — most currently, the quarter ended September 30, 2023.
Our analysis measured the demonstrated skill of 90 portfolio managers in seven key decision types: stock picking, entry timing, sizing, scaling in, size adjusting, scaling out and exit timing. We isolated each decision type and measured its impact on the portfolio using decision attribution analysis techniques we have developed in conjunction with our clients over the past ten years.
Managers were scored on an Essentia Behavioral Alpha Frontier (EBAF) that considers the hit rate (percentage of decisions that added value) and payoff (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 managers with the highest aggregate scores across all decision types are recognized as top performers in the Behavioral Alpha Benchmark ranking, and are as follows:
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.
| Rank | Manager(s) | Portfolio |
| 1 | Guy Lakonishok Josef Lakonishok Puneet Mansharamani Greg Sleight Menno Vermeulen |
Harbor Capital Advisors/LSV Asset Management – Mid Cap Value Fund |
| 2 | Waldemar Mozes Jonathan Brodsky |
Harbor Capital Advisors/Cedar Street Asset Management – International Small Cap Fund |
| 3 | Rakesh Bordia Caroline Cai Allison Fisch John Goetz |
Pzena – International Focused Value |
| 4 | Martin Walker Bethany Shard |
Invesco – UK Opportunities Fund (UK) |
| 5 | Oliver Collin Steve Smith |
Invesco – Euro Equity Fund |
Highlights of the Q3 2023 Essentia Behavioral Alpha Benchmark Assessment:
- The leading four managers in this quarter’s ranking also scored in the Top 5 of our Q2 2023 and Q1 2023 assessments. This is consistent with our latest research, which finds that a manager’s investment decision-making skill is statistically likely to persist into the foreseeable future (just under two years for the median portfolio in our study).
- For the third consecutive quarter, more than half of participating managers added value through their decision-making compared to their benchmarks. Across all decision types, 53% of managers made decisions that had a positive impact on performance during the 36-month analysis period.
- The period saw a decline in five of our seven component skills, with the percent of portfolios adding value in stock picking and the entry phase (entry timing and scaling in) seeing notable declines (~8%). This was offset to some extent by evidence of slightly better sizing decisions, where the median score rose a small amount.
- This quarter’s first-ranked team at LSV Asset Management had an overall decision hit rate of 49% and a decision payoff of 252% — for a combined Behavioral Alpha Score of 69.8.
- Invesco’s Oliver Collin and Steve Smith are appearing in the Top 5 for the first time. The team’s 49% hit rate and 205% payoff earned them a 64.7 Behavioral Alpha Score.
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-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% |
To contact Essentia about participating in the Behavioral Alpha Benchmark/Award or using the methodology for manager assessment, please complete the form below.
