The Benefits of Active Management in Non-U.S. Equities
InterSec Research, 2009
Stock market rallies over the last two months have brought a welcome relief from the indiscriminate sell off investors faced last year.
While most of 2008 proved to be a difficult stretch for the median EAFE manager to add value, the past six months (ending March 31, 2009) have been more favorable, and the median manager in InterSec’s EAFE Plus Universe has added 2.0% over the MSCI EAFE Index. Simultaneously, managers in the top quartile of this Universe added 3.3% over the benchmark largely as a result of astute stock selection.
While the market rally has offered investors an opportunity to benefit from the stock picking ability of active managers, clients of InterSec Research have expressed concerns as plan sponsors increasingly have raised questions as to the effectiveness of active management compared to passive alternatives. Relative under-performance for a number of EAFE managers in 2008 prompted some U.S. plans to terminate active managers in cross-border investments all together, while institutional investors still weighing the pros and cons have begun to reevaluate the merits of active management across their plan structure. In this memo, we examine the performance of active managers in non-U.S. equities using data from InterSec’s EAFE Plus Universe and illustrate that through careful manager selection, “going active” in international equity portfolios has been a beneficial pursuit for U.S. tax-exempt investors over the long term.