(CSFB) Min(d)in the Opportunity

Article by Maubussin March 2015

  • active management separates sources of excess return into two parts: skill and opportunity
  • see three ways to express skill: market timing, security selection and portfolio construction
  • found strong correlation between years when active managers do well, measured as percentage that beat benchmark, and the relative performance off small versus large cap stocks.  This reflects exposure to factor Small Minus Big.
  • interesting when talking about security selection. breaks down decades


  • 1970’s 47 percent beat market
  • 2000 45 percent beat


    • 1990s 34 percent beat
    • 1980 37 percent beat
  • finds that when large cap stocks outperform small cap stocks in 80 and 90, active manager do relatively poor. 
    • what also shows that market diversity correlate highly with relative returns for large cap investment funds.  For example 58 percent, represented 50% of the market cap of s&p 500 at year end 1995, just 33 stocks at the peak of market in 2000. 
    • Consistent with the notion that falling diversity crates headwind for active managers, the late 90’s were a very trying period for the relative results of active managers.  Diversity rebounded through 2006 with 54 stocks making up half the market and active management fared relatively well. 

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