Detecting False Negatives: Data Driven Approach to Manager Due Diligence

When it comes to evaluating investment managers, there is a tendency to settle for “one-size-fits-all” risk/return metrics. Returns, beta, correlation, and volatility don’t reveal the complete narrative, however, and an overdependence on these can give rise to serious inefficiencies.

In previous publications, we have highlighted asset managers’ ability to generate excess return via position sizing and security selection skills. In this article, we team up with Heard Capital to offer a framework for identifying active managerial skill that incorporates the ability to manage exposures at both the market and sector levels.

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What's discussed?

  • Bias towards returns, beta, correlation, and volatility
  • Pitfalls of statistical analysis
  • Analyzing risk/reward vs. managing exposure to market and sectors