New assessment shows sharp increase in active portfolio managers who added value through their decision-making.
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Essentia’s Behavioral Alpha® Benchmark ranking recognizes active equity portfolio managers who have demonstrated superior investment decision-making skills in a 36-month period. Using our proprietary Behavioral Alpha Benchmark methodology, our ranking considers the value added (or destroyed) by individual investment decisions, rather than traditional performance-based metrics derived from historical returns (and thus subject to the random effects of luck).
The Behavioral Alpha Award is conferred annually at each calendar year-end (see the 2022 award winners here); with interim rankings computed each quarter — most currently, the quarter ended March 31, 2023.
Our analysis measured the demonstrated skill of 87 portfolio managers in seven key decision types: stock picking, entry timing, sizing, scaling in, size adjusting, scaling out, and exit timing. We isolated each decision type and measured its impact on the portfolio using decision attribution analysis techniques we have developed in conjunction with our clients over the past nine years.
Managers were scored on an Essentia Behavioral Alpha Frontier (EBAF) that considers the hit rate (percentage of decisions that added value) and payoff (net amount of value added) for each decision type. The five managers with the highest aggregate scores across all decision types are recognized as top performers in the Behavioral Alpha Benchmark ranking, and are as follows:
The five highest-scoring managers, represented by the magenta dots, are those towards the upper-right on this frontier diagram — furthest away from 0,0.
| Rank | Manager(s) | Portfolio |
| 1 | Guy Lakonishok Josef Lakonishok Puneet Mansharamani Greg Sleight Menno Vermeulen |
Harbor Capital Advisors/LSV Asset Management – Mid Cap Value Fund |
| 2 | Waldemar Mozes Jonathan Brodsky |
Harbor Capital Advisors/Cedar Street Asset Management – International Small Cap Fund |
| 3 | Martin Walker | Invesco – UK Opportunities Fund (UK) |
| 4 | James MacGregor Erik Turenchalk |
AllianceBernstein – US Small and Mid Cap Value |
| 5 | Rakesh Bordia Caroline Cai Allison Fisch John Goetz |
Pzena – International Focused Value |
Highlights of the Q1 2023 Essentia Behavioral Alpha Benchmark Assessment:
- Since our last ranking based on the three years ending in Q4 2022, significantly more managers added value with their decision-making when compared with their benchmarks. Across all decision types, 64% of managers made decisions that had a positive impact on performance during the 36-month analysis period — that’s up from 47% a quarter ago.
- One manager team — Waldemar Mozes and Jonathan Brodsky at Cedar Street Asset Management — has remained in the top five since our last ranking one quarter ago.
- Martin Walker of Invesco’s UK Opportunities Fund appears in the top five list for a second time, having finished at number five in our first ranking, which was based on data through Q1 2022.
- Across all decisions, this quarter’s first-ranked team at LSV Asset Management had a hit rate of over 50% and a payoff of over 268% — for a combined Behavioral Alpha score of 72.2.
- This quarter’s ranking considers the 36-month period that began in Q2 2020 — losing the COVID shock that rattled the market in February and March 2020. This may help explain the high turnover in the top five managers from last quarter’s ranking to the current one, and it implies that equity managers in general struggled to make good decisions during that initial COVID volatility.
- Managers continue to struggle with exit timing — only 51% of managers added value through exit timing, a 7% decline from one quarter ago.
Aggregate trends from our prior rankings (based on 36 months ended Q1 2022 and Q4 2022):
| Percent of portfolios adding value |
Percent of portfolios with positive hit rate |
Percent of portfolios with positive payoff |
|
| Ending 2023-Q1 | 63.6% | 28.4% | 79.5% |
| Ending 2022-Q4 | 46.7% | 23.3% | 63.3% |
| Ending 2022-Q1 | 43.4% | 18.4% | 68.4% |
To contact Essentia about participating in the Behavioral Alpha Benchmark/Award or using the methodology for manager assessment, please complete the form below.
