The ice is melting on searches for top-down equity managers like Fiduciary Asset Management LLC, said Wiley D. Angell, the firm's president and CEO. St. Louis-based FAMCO has yet to win a new account in 2009, but has been included in more searches and has seen much more interest from consultants.
Mr. Angell said two insurance companies are planning to search for top-down equity managers this fall, but declined to name the firms.
“This is a trend from almost no searches to a few searches,” he said. FAMCO managed $5.4 billion as of June 30, more than 90% of which was for pension funds, foundations and endowments. FAMCO's flex core equity strategy, a U.S. large-cap strategy that tilts toward growth or value depending on macro factors, outperformed its Standard & Poor's 500 benchmark in all bull and bear markets since its Dec. 31, 1994, inception through March 31, according to data posted on FAMCO's website.
The manager underperformed in the second quarter, but, Mr. Angell said, top-down strategies take time to play out. “It's not designed to outperform over a quarter,” he said. Five- and 10-year annualized outperformance through June 30 was 149 basis points and 607 basis points respectively, according to data from eVestment Alliance LLC, Marietta, Ga.
Another top-down equity manager that sailed through the crisis was Montreal-based Hexavest Inc. The firm's global and international equity strategies outperformed their respective benchmarks by 15.24 percentage points and 11.84 percentage points in the year ended June 30, according to data on the company's website. The global strategy topped its MSCI World benchmark in annualized 10-year returns by 5.85 percentage points, while the international strategy bested its MSCI Europe Australasia Far East index benchmark by 4.22 percentage points in the same period. Hexavest managed about $1 billion as of June 30.
But not everyone agrees that macro inputs are becoming more important or widespread. Andy Barber, global head of manager research at Mercer LLC in London, said the current environment doesn't necessarily call for managers changing their investment processes to include something that's not a strength.
“Now that you've had a broadening of valuation spreads, do you really want people to be predicting macro (movements) when the stock selection opportunities are wider than a year ago?” Mr. Barber asked.
At Standard Life Investments Ltd., Edinburgh, the importance of macro ideas — which reigned the past two years or so — is starting to wane, said Frances Hudson, global thematic strategist. Instead, SLI is looking at stock-specific factors, especially earnings reports. “They have the power to move markets,” Ms. Hudson said, adding that macro inputs were important the past two years in predicting the economic collapse. She said investors were hearing mixed signals: bonds were pricing in a major recession based on macro factors, while stock analysts continued to predict optimistic earnings. “It was the macroeconomic side that got it right,” she said. But Mr. Eager said that the demand for greater consideration of macro inputs is part of an industrywide rethinking of investment management that extends to investment consultants, who have tended to focus on manager selection, “almost like a bottom-up (process), if you will.” Consultants' output on macro issues “has been fairly limited,” he said. “That should shift, and I think that will shift.”
In fact, Watson Wyatt Worldwide Inc. has been doing this since at least 2005, when it issued seven broad investment themes. In a recent paper the consultant updated its views on those themes: demographics, environment, public policy, sentiment, energy, geopolitics and emerging wealth. According to the update, although the outlook in 2005 focused on the themes of demographics and emerging wealth, the financial crisis caused the themes of public policy (inflation/deflation, increased regulation) and geopolitics (protectionism, competition for resources) to “dominate the investment landscape.”