November 10, 2020 | Vanguard Perspective
If an active equity manager is found to have generated returns that could have been more or less mimicked by factor strategies, you may be able to produce a similar style profile for your clients with greater transparency, more risk control, and lower costs, thereby raising the bar for some active managers.
By assessing the "clonability" of the traditional active equity managers in your clients' portfolios, you may find that a manager hired to generate positive alpha has merely been providing a fairly consistent tilt toward one or more well-known factors.
In cases where traditional active equity managers are not adding unique value or are charging too much, use this step-by-step approach to see if replacing them with a factor strategy provides an opportunity to generate excess return, with greater transparency, more risk control, and lower implementation costs.
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