It's an increasingly bifurcated, asymmetrical market, marked by record highs on the Dow and S&P 500 and record low interest rates; an emerging energy boom and stubbornly high unemployment; domestic markets up one minute and emerging markets the next; and on and on it goes.
Yet somehow our 2013 SMA Managers of the Year continue to outperform. How it is done?
"Consistency," Paul Viera of Earnest Partners, one of this year's winners, said with a coy smile. Thankfully, Viera and the other winners opened up in one-on-one-interviews with Investment Advisor (videos of those interviews can be found on AdvisorOne.com) at the Envestnet conference in Chicago in early May, where the awards were announced.
So how did our winners not only manage in such an environment, but consistently outperform—as measured by 13 factors—in calendar year 2012? How did we choose the absolute best? Was it all about one-year performance? (No, it was not.) Picking the finalists and eventual winners was a difficult decision that sprung from a well-honed, collaborative process that always kept advisor access and the strategies' place in client portfolio-building top of mind.
The process begins each year with Envestnet | Prima looking for repeatable, sustainable investing processes in the SMA managers' strategies. Each strategy must have a clear "alpha thesis" and be available to advisors on multiple platforms to even be considered as candidates for this annual honor. The products must report to the PrimaGuide research application, have at least $200 million in assets and have tenured management of at least three years. Products and managers must rate highly according to Prima's due diligence process, which uses a proprietary, systematic, multifactor manager evaluation methodology that combines both quantitative and qualitative criteria. There are 13 factors that the Prima analysts consider before recommending the finalists for SMA Managers of the Year, including performance, firm, people, process, style, customer service, tax efficiency and a composite score.
The goal? To identify finalists for each award in four separate categories: U.S. Equity Large-Cap; U.S. Equity Small-, Mid- or SMID-Cap; International or Global Equity; and Fixed Income. The Awards Committee that chooses the winners in each category—and this year, an individual SMA Manager of the Year who stands out among this already stellar crowd—includes Gib Watson, CIMA, the founder and long-term leader of Prima (and now Envestnet vice chairman); Cliff Stanton, CFA, chief research officer of Envestnet | Prima; and two members of the advisor press: myself, editor-in-chief of Investment Advisor, and James J. Green, editorial director of the Investment Advisor Group of Summit Business Media.
The process of choosing the award winners is no casual affair, and the Prima analysts who present multiple managers for consideration in each category must defend their choices to the Awards Committee, using their quantitative skills but also their qualitative knowledge of the managers and their teams and the firms that employ them.
With that, Envestnet | Prima and Summit Business Media are proud to present the 2013 SMA Managers of the Year.
U.S. Equity Large-Cap Award
The first award in U.S. Equity Large-Cap Awards went to Robeco Boston Partners for its BP Large-Cap Value strategy.
"The strategy is an excellent option for investors seeking a relative value large-cap manager, which we believe has identifiable and sustainable competitive advantages as well as a clearly articulated alpha thesis," Green said in announcing the award.
"We try to find three characteristics to stocks—valuation, fundamentals and momentum," Robeco Boston Partners' David Pyle said upon receiving the award. "We found that these characteristics over time lead to outperformance. When we find these characteristics and put a portfolio together, we've found that over time that's what helps us out, really, in any market."
St. Louis-based Wedgewood Partners took home the second award, a repeat of a win in 2011, for its Large-Cap Focused Growth strategy.
"With respect to the team's alpha thesis, it seeks to identify stocks that it believes are mispriced in the short term, as investors are often overly concerned with near-term events while this team is focused on the long-term sustainability of growth," Watson said. "While it's common amongst long-only active managers, the team does approach the large-cap growth space in a differentiated manner from the vast majority of its competitors."
Wedgewood's David Rolfe said "it all comes down to discipline. We've just entered the fifth year of a bull market, and different sectors and stocks come in and out of favor. But I'm very proud of the work our team has done in sticking to our philosophy of investing in terrific growth businesses but with the discipline of paying attention to valuation."
U.S. Equity Small-, Mid- or SMID-Cap Award
Earnest Partners took home the third award for its Mid-Cap Core strategy.
"Unlike most managers, Earnest has built out a very unique investment team, which we believe is the firm's edge and will be the driver of excess returns," Green said, quoting Envestnet | Prima's analysts. "Indeed, instead of hiring personnel with buy- or sell-side investment-related experience, the firm takes a different approach in hiring research analysts who have substantial real-world industry or sector-specific experience."
"You have to not pay attention to the everyday noise that occurs in the market," Earnest Partners' Paul Viera said with the aforementioned grin and still holding his cards close to the vest. "You have to look at businesses that are building something of value brick by brick. In the fullness of time, that smooths out the performance and allows you to get pretty good performance."
