A Modest Defense of Active Management

March 31, 2019

Robert A. Gillam, CFA Chief Executive Officer McKinley Capital Management, LLC
John B. Guerard, Director of Quantitative Research McKinley Capital Management, LLC


The purpose of this study is to document the existence of statistically significant Active Returns and positive Specific Returns (positive stock selection) in portfolios created by variable tilts linked to financial anomalies known during the 1997-2003 time period with particular emphasis on earnings forecasts. It then tests whether these variables have held up through the 2003-2018 time period. We report three results: (1) many of the reported financial anomalies published in the 1993 – 2003 time period maintain their statistically significant active (or excess) returns during the 2003 – 2018 time period, and particularly well post the Global Financial Crisis, 2010-2018; (2) the anomalies are larger in non-U.S. markets than in the U.S.; and (3) reasonable transactions costs do not destroy the excess returns.

Full Paper: A Modest Defense of Active Management (PDF)