Director of Portfolio Research John C. Forelli, CFA, dissects active management performance across sectors, regions, and style.
Catalysts in Play: Many investors, frustrated by their seeming inability to beat the S&P 500, have come to believe that passive indexing is a better solution. But when we took a closer look, we noticed something interesting: Value managers have actually been very successful at beating the benchmark for years.
Entry Points: While passive strategies gained popularity among investors in recent decades, the case for active management remains strong for value investors. In contrast to both growth and core managers, active value funds have consistently demonstrated an ability to generate alpha returns due to stock selection.
- Consistent outperformance over time: When we dissected the performance of large-cap value, growth, and core managers, we found that less than 10% of growth managers beat the S&P 500 benchmark over the last five, 10, and 15 years. In contrast, over 60% of large-cap value managers outperformed over the same periods.
- Consistent outperformance across cap sizes and regions: Within value, more than 50% of active small- and mid-cap managers also outperformed their benchmarks over the past five, 10, and 15 years. Similarly, more than 60% of international equity value managers beat their benchmarks over those time periods without exception.
- The case for active value: While active value managers have been able to use to use stock selection to drive excess returns, large-cap growth managers have been hampered by the strong performance of FAANG stocks (Facebook/Meta, Apple, Amazon, Netflix, and Alphabet), which have been difficult to overweight in their portfolios.
Active Strategy: Since our inception in 1995, Boston Partners has been committed to delivering strong returns in active value equity strategies. Across all capitalizations and geographies, we have consistently delivered excess returns, net of fees, relative to our respective benchmarks over time. We maintain that active value management belongs in everyone’s portfolio, and forgoing an active value manager could leave money on the table.
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Terms and Index Definitions
S&P 500® Index: The S&P 500® Index is a registered trademark of the McGraw-Hill Companies, Inc. and is an unmanaged Index of the common stocks of 500 widely held U.S. companies.
FAANG+: FAANG is an acronym referring to the stocks of the five most popular and best-performing American technology companies: Meta (formerly known as Facebook), Amazon, Apple, NVIDIA, and Alphabet (formerly known as Google).
MSCI EAFE (Europe, Australasia, Far East) Index: A free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.
MSCI EAFE Value Index: : Captures large and mid cap securities exhibiting overall value style characteristics across developed markets countries around the world, excluding the US and Canada. The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price and dividend yield.
MSCI EM (Emerging Markets) Index: Captures large and mid cap representation across emerging markets countries covering approximately 85% of the free float-adjusted market capitalization in each country.
MSCI EM Currency Index: The MSCI Global Currency indices are constructed with an objective to reflect an investment process that uses a combination of monthly trades of currency forwards against the home currency and home currency Libor deposits to capture currency and interest rate returns.
The MSCI world index, which is part of The Modern Index Strategy, is a broad global equity index that represents large and mid-cap equity performance across 23 developed markets countries. It covers approximately 85% of the free float-adjusted market capitalization in each country and MSCI world index does not offer exposure to emerging markets.
MSCI World Net Return Index :. Captures large and mid cap representation across developed market countries covering approximately 85% of the free float-adjusted market capitalization in each country.
Russell 1000® Growth Index: Measures the performance of the largecap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with relatively higher price-to-book ratios, higher I/B/E/S forecast medium term (2 year) growth and higher sales per share historical growth (5 years).
Russell 1000® Value Index: The Russell 1000® Value Index contains stocks included in the Russell 1000® Index displaying low price-to-book ratios and low forecasted growth values.
Russell 2000® Index: The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index.
Russell 2000® Growth Index: The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Russell 2000® Growth Index contains stocks included in the Russell 2000® Index displaying high price-to-book ratios and high forecasted growth values.
Russell 2000® Value Index: The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Russell 2000® Value Index contains stocks included in the Russell 2000® Index displaying low price-to-book ratios and low forecasted growth values.
Russell 3000® Index: The Russell 3000® Index measures performance of the 3,000 largest U.S. companies based on total market capitalization. The Russell 3000® Index measures performance of the 3,000 largest U.S. companies based on total market capitalization.
Russell 3000® Growth Index: The Russell 3000® Index measures performance of the 3,000 largest U.S. companies based on total market capitalization. The Russell 3000® Growth Index contains stocks included in the Russell 3000® Index displaying high price-to-book ratios and high forecasted growth values.
Russell 3000® Value Index: The Russell 3000® Index measures performance of the 3,000 largest U.S. companies based on total market capitalization. The Russell 3000® Value Index contains stocks included in the Russell 3000® Index displaying low price-to-book ratios and low forecasted growth values.
Russell 3000® Value Index: Measures the performance of those Russell 3000® Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000® Value or the Russell 2000® Value Indices.
Disclosures:
Boston Partners Global Investors, Inc. (“Boston Partners”) is an Investment Adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. Registration does not imply a certain level of skill or training. Boston Partners is an indirect, wholly owned subsidiary of ORIX Corporation of Japan (“ORIX”). Boston Partners updated its firm description as of November 2018 to reflect changes in its divisional structure. Boston Partners is comprised of two divisions, Boston Partners and Weiss, Peck & Greer Partners (“WPG”).
The views expressed reflect those of Boston Partners as of October 25, 2023. Any such views are subject to change at any time based on market and other conditions and Boston Partners disclaims any responsibility to update such views. Discussions of market returns and trends are not intended to be a forecast of future events or returns.
Estimates reflect subjective judgments and assumptions. There can be no assurance that developments will transpire as forecasted and that the estimates are accurate.
