Another aspect that speaks for boutiques is the fact that they tend to be more unconstrained and have more flexibility than managers who are caught in the straitjacket of a large asset manager.
“Active share is an appropriate metric to measure whether a manager is prepared to set his own course and take a certain conviction,” says Saba. “So we look at that, but it’s important not to fixate on one or another aspect too much, so I don’t look for a minimum or a maximum active share per se.”
High conviction could result in (temporarily) higher volatility, but Saba isn’t immediately bothered by that, “as long as the client is prepared to take on the additional risk associated with that”.
“The amount of time it takes for a manager to recover drawdowns is more important for me than volatility. In fact, I believe there is no relationship between the capacity of a manager and the volatility of his fund.”
Performance, or to be more precise the excess returns a fund provides above the benchmark, remains the decisive criterion for Saba when it comes to picking a fund.
“When I buy an active manager, I do that because I expect him to outperform, quite frankly,” he says. Therefore, the Belgian always starts his fund analysis by looking at the track record of a fund. If the results are pleasing, he starts analysing how the manager has earned his appealing track record. “You need to know whether good results are due to luck or skill. To find that out, you must dig deeper.”