Can independent active boutiques snatch alpha from volatility?
According to the study titled The Independent Boutique Advantage in Volatile Environments, alpha-oriented boutique investment firms delivered an average of 241 basis points of net excess returns over their relative indexes in periods of elevated volatility.
That outperformance was observed across 11 equity product categories during times of turbulence. In all other periods, independent boutique firms generated alpha amounting to 82 basis points on average over their indexes.
The study found that boutiques outperformed non-boutiques in 10 out of 11 equity product categories by an average of 116 basis points during periods of high volatility, and by 41 basis points in all other periods.
“[T]he dispersion of excess returns across all levels of heightened volatility suggests that extreme market disruption is not the only environment in which boutiques generate alpha,” the study said. “In fact, any above-average levels of volatility provided greater asset dispersion and enhanced opportunities for the best active managers to generate outperformance.”
AMG noted that independent active boutique investment firms are best positioned to produce consistent excess returns over the long term because of several characteristics, including: