Practical Applications of In Defense of All-Active Manager Structures

Institutional investors spend most of their time looking for active equity managers who can beat their benchmarks. But according to Hamilton Lee and Jacqueline Williams , they should spend at least as much time looking at the portfolios structures themselves The authors, both managing directors at Cambridge Associates , explain why, by comparing two common portfolio structures: the donut and the core-satellite. Investors commonly assume that core-satellites, which balance several actively managed strategies with a large, passively managed core to offset risk and garner superior performance, reduce risk and have lower fees and higher performance. But in the 17-year period the authors measured, the donut outperformed the core-satellite, while offering a similar risk profile. “The satellites on a standalone basis add oomph to a portfolio,” says Williams.