The returns generated by independent boutiques over the past 20 years were highest during years of elevated market volatility, according to a report by AMG.
In a follow-up to its study ‘The Boutique Premium’, AMG examined independent boutique performance and its relationship to market volatility over the past two decades.
The global asset management company has equity investments in boutiques that represent over $600bn (€551.6bn) of AUM, so it is fair to state that AMG has skin in the game.
Key findings of the ‘The Independent Boutique Advantage in Volatile Markets’ research were that boutiques:
- Meaningfully outperformed both non-boutiques and passive indexing in periods of elevated volatility;
- Generated substantial net excess returns versus indices in all 11 institutional equity categories studies; and,
- Significantly outperformed non-boutiques in 10 out of 11 institutional equity categories.
According to AMG, independent boutique investment firms are uniquely well-positioned to consistently generate investment alpha and outperform non-boutiques and passive indexing due to several core characteristics.
These include principals with significant direct equity ownership and a high degree of alignment with clients, an entrepreneurial culture with a partnership orientation, an investment-centric organisational alignment and principals committed to building an enduring franchise with a long-term orientation.
“High-volatility environments lead to increased dispersion of asset returns,” the report stated. “Which creates additional alpha opportunities for the highest-quality active managers.
“In times of market turmoil or uncertainty, a skilled investment manager’s ability to dynamically position portfolios can help mitigate the effects of a market downturn on a portfolio.”
The study incorporated data from more than 1,300 investment management firms around the world and nearly 5,000 institutional equity strategies encompassing approximately $7trn in AUM.
The study analysed rolling one-year returns for the trailing 20-year period ending 31 December 2019, across 11 broad institutional equity product categories, on a strategy-by-strategy basis.