Measuring skill, not past performance
Performance is not a measure of investment skill — it’s a measure of outcome. And while performance is a function of skill, it’s also a function of luck. Investors should be paying for skill — not luck — but how do we distinguish between the two?
Essentia’s Behavioral Alpha® Benchmark looks beyond historical returns — and the effects of luck — to measure a portfolio manager’s demonstrated skill across a range of investment decision types.
April 11, 2024: Essentia launches the Behavioral Alpha Benchmark app for assessing active portfolio managers based on decision-making skill. Try the app now
These Essentia Behavioral Alpha Frontier (EBAF) diagrams are skills-based assessment and comparison tools. They depict the value added or destroyed by a given decision type for each participating portfolio manager. Magenta dots represent the top five managers in the overall assessment.
Each quarter, Essentia publishes the results of our Behavioral Alpha Benchmark assessment, which uses our peer-reviewed methodology to measure portfolio manager skill over the previous 36 months in seven key decision types: stock picking, entry timing, sizing, scaling in, size adjusting, scaling out and exit timing.
The most recent assessment examined 116 active equity portfolio managers from January 1, 2021 through December 31, 2023. The five managers with the highest aggregate scores across all decision types agreed to be identified and are recognized as winners of the Behavioral Alpha Award.
Behavioral Alpha® Award Winners
Congratulations to the winners of our Behavioral Alpha Award.
The top five managers in the current assessment (three years ended December 31, 2023) are:
#1
Federated Hermes – U.S. SMID Fund
#2
Harbor/LSV – Mid Cap Value Fund
#3
Harbor/Cedar Street – International Small Cap Fund
#4
Brown Advisory – Small-Cap Fundamental Value Fund
#5
Invesco – Global Equity Fund (UK)
Who uses the Behavioral Alpha® Benchmark
PMs & Research Analysts
Use the Benchmark to compare their decision-making skills to peers and continuously improve performance.
CIOs & Investment Team Leaders
Use the Benchmark to understand, evaluate and track the skills of each investment team member.
Asset Allocators & Wealth Managers
Use the Benchmark to ensure they understand the strengths and weaknesses of the managers with whom they invest — and that they’re selecting the best, most-skilled managers for their capital.
If you’re already an Essentia client, there is no additional cost to participate in the Behavioral Alpha Benchmark. This skills-based assessment is the core of the analysis we run with all equity portfolio manager clients to help them understand the strengths and weaknesses in their investment process. If you’re not yet a client, please contact us to learn more.
For your portfolio to qualify for the Benchmark, we’ll need at least three years of historical and daily holdings data. You provide the data via CSV file using Essentia’s template or your own. Essentia has a tried-and-tested process for making the data upload process simple to establish and automate, and our dedicated Data Onboarding Team is there to help every step of the way.
Download an overview of the Behavioral Alpha® Benchmark: