GLOBAL – Mercer Investment Consulting says its manager research recommendations added zero extra value for clients in the first quarter of this year.
Mercer regularly updates the performance of its global manager recommendations against appropriate benchmarks.
“The average value added for Q1 of 2003 across the 47 product categories covered by the analysis was zero,” says the latest report, published on the firm’s web site. The 47 categories encompass around 500 different products.
Mercer’s Bill Muysken, who compiled the report, said there was no one single reason behind the figure, except to say that active managers did not do so well in the first quarter.
He added that Mercer is confident in its manager selections over the long term. “If it were a long-term pattern it would be a problem. We’re comfortable that the long-term figures are in the right direction.” He added that the average value added since the figure was first measured two years ago is +1.9%.
“The rolling 1-, 3-, and 5-year figures are now 0.7%, 1.5% per annum and 1.8% per annum, respectively,” the report says. Muysken said he had no feel as yet for how the second-quarter figures, due in October, will look.
Mercer developed a method for measuring the value added through its Mercer’s manager research recommendations in 2001.
“For each investment product that we research, we arrive at a rating on six-tier scale in which the possible ratings are A, A-, B+, B, B- and C,” explains Mercer. Its shortlists are generally drawn from the A and A- candidates in the relevant product category.
To calculate the value added, Mercer first calculates the average performance of the products that it rates A and A- then subtracts the return for an appropriate benchmark index. It also calculates a risk-adjusted measure of the value added called the information ratio.
“In essence, this methodology tracks the performance of a hypothetical Mercer client that is assumed to split its money evenly between all of the products rated A or A- by Mercer within the product category concerned,” says an explanation of the process on the site.
“This hypothetical Mercer client is assumed to have reviewed its manager line-up at the end of each quarter, based on the Mercer ratings as they stood at that point in time.”
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