James Scott and Margaret Stumpp
Volume 1, Number 3, Third Quarter 2003
This paper investigates the type of returns-based data a consultant or institutional investor would confront when analyzing an existing enhanced index manager or searching for a new one. The paper presents findings about different types of enhanced managers. Among them, and not surprisingly, the data suggests that all enhanced managers control tracking error by diversifying and by controlling factor exposures, in particular those relating to style (growth versus value) and company size. However, once those variables are controlled, the excess returns of these managers have remarkably low correlations, even among those following seemingly similar strategies.