TY - JOUR T1 - In Defense of All-Active Manager Structures JF - The Journal of Investing SP - 7 LP - 19 DO - 10.3905/joi.2016.25.4.007 VL - 25 IS - 4 AU - Hamilton Lee AU - Jacqueline Williams Y1 - 2016/11/30 UR - https://pm-research.com/content/25/4/7.abstract N2 - When it comes to active equity manager selection, many investors focus their efforts on identifying managers that can beat their benchmarks. But investors may overlook the fact that the structure of their equity manager portfolios can be just as important as the managers they choose when it comes to outperforming the market and generating alpha. Two common portfolio structures are the “donut” structure, typically composed of four or more high-conviction managers diversified by style, capitalization, or strategy, and the “core-satellite” structure, which pairs the donut structure with a large passive core. Due to the donut structure’s reliance on concentrated, high-active-share managers (which typically generate higher tracking error and come at a higher fee), there is a common misperception that the large passive element of the core-satellite structure reduces risk and makes the portfolio both less expensive and less aggressive than the donut structure. But over the 17-year period in this analysis, the more concentrated donut structure offered higher returns, net of fees, with comparable levels of risk to the core-satellite structure. Investors may consider reassessing whether a core-satellite structure is as likely to help them earn superior returns as using the donut structure.TOPICS: Manager selection, performance measurement ER -