Zephyr Releases PSN Top Guns List Highlighting Best-In-Class Separate Accounts, Managed Accounts and Managed ETF Strategies
Nine out of ten top plan sponsors count on PSN for accurate SMA data
Did Active SMAs Beat Their Passive Counterparts During Q2?
With the lower volatility and strong equity market performance during the first part of the year it’s a good time to look at how actively managed separately managed accounts (SMAs) fared against their passively managed counterparts during the quarter.
There is a common perception in the investment world that active managers have an advantage over passive managers during times of increased volatility, since active managers can go on the defensive, whereas passive managers have strict mandates to mimic an index.
After a bout of low equity volatility, measured by CBOE’s S&P 500 Volatility index (VIX), in 2021, volatility surged above its 5-year average (19.3) in 2022. Despite 40-year high interest rates, equity volatility has fallen well below its 5-year average following the regional banking crisis and debt ceiling stand-off in March (Figure 1).
Equity investors continued to wrestle with uncertainty around monetary policies, health of the U.S. and global economies, inflation, geopolitical concerns and climbing bond yields. Despite the growing concerns and uncertainties, the S&P 500 index posted a +8.74% return during the second quarter, which corresponds to the fall in volatility. Furthermore, the S&P 500 index posted a strong 16.89% return during the first six months of the year. With the lower volatility and strong equity market performance during the first part of the year it’s a good time to look at how actively managed separately managed accounts (SMAs) fared against their passively managed counterparts during the quarter.
As you can see in the Zephyr graph below (Figure 2), the percentage of SMAs that outperformed their respective category index during the second quarter of 2023 was a mixed bag. Roughly 25% of large core and large growth SMAs outperformed their category index, while just less than 50% of large cap value managers beat the Russell 1000 Value index. Continuing with the growth vs value story, managers with a growth mandate struggled to beat their benchmark, particularly large (25%) and small (25%) growth managers. However, mid-cap growth managers fared a little better as just less than 50% of mid-cap growth SMAs beat the Russell MidCap Growth index.
The story is a little different on the opposite side of the style spectrum. Nearly 60% of small value managers beat the Russell 2000 Value index while nearly 75% of mid-cap value managers beat their respective category index.
It was a similar story over the first six months of the year for large and mid-cap SMAs regardless of style. However, a larger percentage of small cap active managers took advantage of the spike in volatility in March and beat their respective benchmarks over the six-month period compare to the second quarter.
The pace of market moves has increased over the years, which makes it important to strive to create diversified asset allocation strategies that can withstand the different financial market dynamics and changing investment landscape. While you may prefer active investment managers, particularly during times of higher volatility, there may be slices of your client’s asset allocation that might be better suited for low cost passive options.
