Plan sponsors always say they take a long-term approach to investing — and investment manager relationships — "but when you look at the patterns of hiring and firing, there are some who don't," said Barry Gillman, director of the Brandes Institute, a unit of Brandes Investment Partners LP, San Diego.
A new report from the institute "helps reinforce a manager's argument that if we're in the fourth quartile for a year or so, that is something that's not necessarily a disaster."
Brandes researchers examined 53 international equity managers that had track records back to 1990, then pared the group to 29 managers to ensure an equal comparison. They found that 10 of the firms were "consistently good" — their average three- and five-year rolling universe rankings exceeded the universe median and the MSCI EAFE index return for all periods — but even those firms dropped below median "fairly frequently," according to the report. In addition, the three-year records of those 10 managers were in the fourth quartile for 7% of the periods measured.
Four of the 10 managers considered "consistently good" could have been fired for "bad" performance, or five managers if the measurement period were extended through the third quarter of last year.
"The message is long term and patience," Mr. Gillman said. "How do you take a long enough view? The answer is to look at enough data and understand what type of short-term aberrations you see."