National Conference on Public Employee Retirement Systems

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Insights from Active Management Review Research

By: Wilshire

Each year Wilshire produces an active management report focused on public markets. The purpose of this report is to identify market segments where active management has/has not had success over varying time periods, while also looking at the repeatability of performance.

This is an excerpt from NCPERS Spring 2024 issue of PERSist, originally published April 25, 2024.

For over ten years, Wilshire has produced an Active Management Review research paper aimed at identifying the success of active management within public markets. The inaugural paper, published in 2010, was designed as a resource to asset owners when conducting manager searches or contemplating that role of active management within their portfolio. Leveraging the Wilshire Compass database, various statistics are calculated on the investment strategies within the defined universes to develop high level observations.

Wilshire's general expectations across the capital markets are for the average/median manager to generate long-term gross-of-fees performance that is market-like. As such, once accounting for fees, we would expect average active results to trail passive indexes. While much of the quantitative universe data contained within this report support that general expectation, we do not view this as an indictment against the pursuit of active management. Instead, we note that the challenges revealed through historical analysis are the consequence of the “arithmetic of active management,” where the market return simply reflects the accumulation of all investors and underscores the importance of incorporating a robust qualitative manager due diligence process within an active management program.

It is difficult to glean an accurate perspective of the performance of active management without a clear understanding of the underlying market environment. Most active strategies, even those driven by bottom-up, security-specific processes, carry some persistent exposure to one or more systematic factors of the market. The table below ignores statistics that measure active management and instead focuses on the general market environment, the relative behavior of various market segments, and the underlying currents of certain systematic market factors. We hope to present a high-level perspective of important market drivers during the one, three, five and 10-year time periods that can be applied to reaching a better understanding of individual manager performance during these intervals.

We also provide a comparison of periodic returns for various indicative market indexes, including a comparison of related index pairs.

To no surprise of the reader, U.S. Equity markets have provided the strongest returns in all time periods across the asset classes displayed, with the large-cap and growth segments leading the way. Within equity markets outside of the U.S., the developed markets have reigned supreme over emerging markets in all four time horizons. Lastly, within fixed income markets, high yield markets have provided superior returns over the core bond market in all time periods. Further observations within each of these markets pertaining to factors such as style, quality, volatility, momentum, and currency are explored within the paper in greater detail.

Shifting to a review of the relative success of active management, the table below displays the overall ranking of the index within each market segment. In addition to showing the index percentile rank, the shading of the ranking informs us of the overall likelihood of active management's success for a particular universe and time period. A high ranking, colored in red, reflects a benchmark that performed well versus the universe of active investment managers whereas a low ranking, colored in green, represents a universe where a majority of the active managers added value of the respective benchmark.

In review of the last year, active management in U.S. Equity was significantly challenged, with only one of the six style universes having an index that ranked in the fourth decile (Large-cap Value). Similarly, when looking at the Large-cap Growth universe, the index has ranked in the top quartile over each of the four time horizons reviewed, signifying a challenging environment for active management within that market segment. It should be noted that most of the red shaded cells occur within the U.S. Equity market, supporting the view of equity markets being most efficient within the states as compared to non- U.S. markets where the index consistently ranked in the third or fourth deciles, indicating the potential for active management to add value to investor's portfolios. A similar story can be told within the fixed income markets reviewed.

Additional insights into each of these universes are available within the Wilshire 2023 Active Management Review research paper available on our website ( which dives further into each universe to provide average and median excess returns and information ratios, as well as statistics around the consistency (or lack thereof) of active management to repeat performance on both an absolute and risk adjusted basis.


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