The study, which updated 1995 data, found that:
- Approximately 40% of firms with top quartile performance have less than $2 billion in assets under management,
- Results are consistent across all major investment style groups,
- Small firms often delivered dramatically better performance in down markets,
- These small firms hold just 1% of assets in the US market.
“These firms are often excluded from large institutional manager searches, which typically focus on established firms with more than $2 billion in assets under management. As a result, institutional investors may be overlooking potential opportunities to add alpha to their portfolios, said Larry Jones, Practice Leader, Emerging/Minority Programs, Northern Trust Global Advisors (NTGA), in a news release. “Our research makes a compelling case for the inclusion of these smaller portfolio management companies as part of a larger asset allocation strategy.”
The first study examined data from the fourth quarter of 1988 through the third quarter of 1993 and the update covered the five years ending September 2005. The new research covers the period 2001-2005 and includes performance data for 531 active core US equity products managed by 287 firms with a total of $7.9 trillion under management.
Each timeframe included a full business cycle and periods of strong and weak performance for major investment styles.