AMG Announces Release of New Study: The Independent Boutique Advantage in Volatile Environments
Independent boutique active managers outperformed both non-boutique active managers and passive indexing over the past 20 years, delivering the highest excess returns during periods of elevated volatility
Independent boutiques outperformed passive indexing in 11 of 11 product categories and non-boutiques in 10 of 11
Boutiques produce an average 241 bps of excess returns relative to passive indexing during highly volatile periods
Greatest outperformance by boutiques in Global Equities, Emerging Market Equities, and Small Cap Equities
WEST PALM BEACH, Fla., April 17, 2020 (GLOBE NEWSWIRE) -- As investors grapple with challenging decisions in the face of uncertainty, record market volatility has created a favorable environment for independent active boutique managers to generate alpha. Defined by their investment independence, operational autonomy, entrepreneurial cultures, and specialized investment processes, independent boutiques outperformed both passive indexing and non-boutique active managers in periods of elevated volatility over the past 20 years, according to a new study released by global asset management company Affiliated Managers Group, Inc. (AMG). Building on the results of AMG’s original study, “The Boutique Premium” (initially published in 2015 and updated in 2018), which concluded that boutique firms outperformed indices and non-boutiques, “The Independent Boutique Advantage in Volatile Environments” empirically demonstrates that alpha-oriented boutique investment firms delivered the highest excess returns over passive indexing and non-boutiques in periods of elevated volatility.
“The unprecedented volatility in the market today is prompting investors to consider whether they can afford to take a passive approach to managing their portfolios,” said Jay C. Horgen, President and CEO. “We believe that active management plays an important role in client portfolios at all times, but now more than ever. Two decades of data strongly indicate that now is the time for investors to turn to independent active boutique managers – independent boutiques generate the highest excess returns, relative to both passive indexing and larger active managers, in periods of elevated volatility. The contrast between active boutiques and passive indexing in periods of volatility could not be more stark, with independent boutiques outperforming indices in every investment style studied, by an average of 241 basis points.”
Mr. Horgen continued, “With their unique entrepreneurial cultures; highly focused, specialized investment processes; and direct ownership of their businesses, independent boutique firms are most closely aligned with clients’ interests and able to protect capital and nimbly pivot to the investment areas of greatest opportunity in general – and especially in times like these. AMG’s unique partnership approach preserves the fundamental elements that have made excellent boutique firms successful over time – and our independent Affiliates, recognized globally as leaders in their areas of specialty, are well-positioned to generate long-term alpha, especially in challenging market environments such as this one.”
Key Highlights from the Study:
The analysis found that over the last twenty years:
Independent active boutiques delivered nearly 3x excess returns against passive indexing when volatility was high: The average boutique outpaced its relative index in all 11 equity product categories and delivered 241 basis points of net excess returns relative to indices in periods of elevated volatility, compared to 82 basis points of outperformance during all other periods.
Independent boutiques significantly outperformed non-boutiques in periods of elevated volatility: The average boutique outperformed the average non-boutique in 10 out of 11 equity product categories by an average of 116 basis points in periods of elevated volatility and 41 basis points in all other periods.
Above-average levels of volatility create advantageous levels of dispersion: Extreme market disruptions and high levels of volatility are not prerequisites for boutique alpha-generation, as reflected by the dispersion of excess returns across the volatility percentiles. Rather, above-average levels provide asset dispersion which enhances the outperformance of active managers.
AMG’s business was founded nearly three decades ago on the principle that, given fundamental characteristics, independent active boutique investment firms are best-positioned to generate excess returns over the long-term. The core characteristics that position boutiques to deliver consistent, superior long-term investment performance include:
Principals have significant, direct equity ownership, ensuring alignment of interests with clients;
Presence of a multi-generational management team, fully engaged across the business;
Investment independence and operational autonomy fostering an entrepreneurial culture with a partnership orientation, which attracts and retains the most talented investors;
Investment-centric organizational alignment, including setting capacity limits to remain nimble; and
Principals are committed to building an enduring franchise, embedding an appropriate long-term orientation.
To review this analysis in full, download “The Independent Boutique Advantage in Volatile Environments” at https://amg.com/the-boutique-advantage
Methodology: The Independent Boutique Advantage in Volatile Environments
The study incorporated data from more than 1,300 investment management firms around the world and nearly 5,000 institutional equity strategies encompassing approximately $7 trillion in assets under management. The study analyzed rolling one-year returns for the trailing 20-year period ending December 31, 2019, across 11 broad institutional equity product categories, on a strategy-by-strategy basis. Using the Chicago Board Options Exchange (CBOE) Volatility Index (VIX) as a proxy for market volatility, we looked at the annual average daily spot rates over the 20-year historical period. Throughout this supplemental analysis, years of “high volatility” were defined as years during which the annual average VIX was above 20, and years where the annual average for the index was below 20 are referred to as periods of lower volatility.
The classification of firms as either “boutiques” or “non-boutiques” was based on AMG’s proprietary analysis, while the MercerInsight® database was utilized for return data. Primary indices for comparison included MSCI Emerging Markets, MSCI World, Russell 1000® Value, Russell 1000® Growth, S&P 500®, Russell Midcap® Value, Russell Midcap® Growth, Russell Midcap®, Russell 2000® Value, Russell 2000® Growth and Russell 2000®. The study estimated boutique net excess returns as compared to indices – incorporating boutiques’ available published or “rack” fee rates in the MercerInsight® database – in order to assess net value creation for investors.
The classification of investment managers and their corresponding strategies as “boutiques” in the study was based on four criteria. First, principals were required to hold a significant amount of equity in their own firms, defined as at least 10 percent ownership. Second, investment management was the sole focus of each firm; investment managers captive in broader financial services platforms were excluded. Third, firms with assets under management greater than $100 billion were not eligible for inclusion. Finally, exclusively “smart beta” or fund-of-funds platforms were removed from consideration, as the analysis concentrated on active boutique investment managers with distinct investment philosophies and highly-focused investment processes.
AMG is a global asset management company with equity investments in leading boutique investment management firms. AMG’s strategy is to generate long-term value by investing in leading independent active investment managers, through a proven partnership approach, and allocating resources across the Company's unique opportunity set to the areas of highest growth and return. AMG’s innovative partnership approach allows each Affiliate’s management team to own significant equity in their firm while maintaining operational autonomy. In addition, AMG provides centralized assistance to its Affiliates on strategy, marketing, distribution, and product development. As of December 31, 2019, AMG’s aggregate assets under management were approximately $726 billion, pro forma for the investment in Comvest Partners which has subsequently closed, across a broad range of active, return-oriented strategies. For more information, please visit the Company’s website at www.amg.com.
Certain matters discussed in this press release may constitute forward-looking statements within the meaning of the federal securities laws, and could be impacted by a number of factors, including those described under the section entitled “Risk Factors” in our most recent Annual Report on Form 10-K, as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC's website at www.sec.gov. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by applicable law. From time to time, AMG may use its website as a distribution channel of material Company information. AMG routinely posts financial and other important information regarding the Company in the Investor Relations section of its website at www.amg.com and encourages investors to consult that section regularly.