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Finding A Manager For All Seasons

Jun 23, 2014 Marc Odo

Recently the headlines have been filled with stories about U.S. equity markets hitting all-time highs.  Since bottoming out in February 2009, it’s been an incredible bull market.  Going forward do you expect the next five years to be as bullish as the last?

I doubt that many investors are optimistic enough to predict another doubling of market values over the next five years.  Yet many investors rely on the trailing five year number when conducting a manager search.  At Zephyr we’ve put together a search template that attempts to identify managers that have done well in all kinds of environments. 

It’s a mash-up between our wildly popular market cycles template and our search feature.  Rather than looking at the last three-year and five-year periods, laden with end-period dependency, the “Market Cycles Search” template breaks the last decade and a half into four distinct, non-overlapping periods.  They are:

• Dot-Com Bust, April 2000 – March 2003
• Easy Money Recovery, April 2003 – July 2007
• Credit Crisis, August 2007 – February 2009
• Recovery/All-Time Highs, March 2009 – present

Two bear markets, two bull markets.  Ideally a manager would perform well in in all of these environments.  Very few do.  This template can also be used to identify managers that did well in specific markets, if you feel like market-timing.

Below is a scatter-plot comparing alphas and betas of small cap value managers versus the Russell 2000 Value.  Of course, like any other Zephyr template, you can switch out the managers, benchmark, or statistics being analyzed. 

If you want to come up with your own time periods, you can do that too.  All of the templates we make available to you can be used either as-is or as a jumping off point for your own ideas.

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