Latest results suggest that portfolio manager investment skill persists over time.
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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, peer-reviewed 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 June 30, 2023.
Our analysis measured the demonstrated skill of 85 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 (the ratio of value added by the average good decision to the value destroyed by the average bad decision) 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 | Waldemar Mozes Jonathan Brodsky |
Harbor Capital Advisors/Cedar Street Asset Management – International Small Cap Fund |
| 2 | Guy Lakonishok Josef Lakonishok Puneet Mansharamani Greg Sleight Menno Vermeulen |
Harbor Capital Advisors/LSV Asset Management – Mid Cap Value Fund |
| 3 | James MacGregor Erik Turenchalk |
AllianceBernstein – US Small and Mid Cap Value |
| 4 | Martin Walker | Invesco – UK Opportunities Fund (UK) |
| 5 | Rakesh Bordia Caroline Cai Allison Fisch John Goetz |
Pzena – International Focused Value |
Highlights of the Q2 2023 Essentia Behavioral Alpha Benchmark Assessment:
- Each of the top five managers in this quarter’s ranking also scored in the Top 5 of our Q1 2023 assessment, advancing the notion that investment skill is persistent — past investment skill tends to indicate continued skill in the future. (We are actively studying this phenomenon and expect to be publishing our findings in the near future.)
- For the second quarter in a row, more than half of participating managers added value through their decision-making compared to their benchmarks. Across all decision types, 57% of managers made decisions that had a positive impact on performance during the 36-month analysis period. That’s down slightly from last quarter’s 64% but above the average of 53% across all our measurement periods.
- Across all decisions, this quarter’s first-ranked team of Waldemar Mozes and Jonathan Brodsky at Cedar Street Asset Management had a hit rate of 52% and a payoff of 214% — for a combined Behavioral Alpha score of 67.6.
- The Cedar Street team and Martin Walker of Invesco’s UK Opportunities Fund are recognized as top performers in three different ranking periods (Mozes and Brodsky: Q4 2022 and Q1 2023; Walker: Q1 2022 and Q1 2023).
Aggregate trends from our prior rankings:
| Percent of portfolios adding value |
Percent of portfolios with positive hit rate |
Percent of portfolios with positive payoff |
|
| Ending 2023-Q2 | 56.5% | 28.2% | 71.8% |
| 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.
