Across the firm, Wilshire Associates has more than 60 investment professionals contributing to its manager research capabilities.
Skilled investors know that a manager’s past performance does not predict their future results. To truly understand a manager’s skill requires the ability to strip out returns attributable to the market, style effects, and other factors embedded in their portfolio that are not intended to be specific drivers of alpha based on their philosophy and process. For example, a major driver of a bottom-up stock pickers’ alpha should be stock selection, while a top-down macro manager should add value across sectors, countries, etc. Wilshire’s manager research process is designed to identify managers who have a consistent, repeatable, and sustainable ability to produce alpha on a forward-looking basis.
Wilshire’s process begins with a large database of over 8,000 investment products that are screened based on quantitative factors to arrive at a short list of managers. Wilshire’s manager research team conducts in-person, telephone, and onsite meetings with investment managers on this list. The manager research team conducts approximately 1,400 meetings a year on average.
Organizational structure and stability can be crucial to the success of an investment strategy. We evaluate the ownership and operational structure of each organization to assess whether the interests of the manager, the firm, and the clients are aligned. As part of the evaluation we consider compensation structure, team/firm stability, trading resources, client service, and other relevant factors.
Is the manager’s current outlook reflected in the portfolio’s relative positioning? For example, if the manager has a bearish outlook, is the portfolio over-weighted in the more defensive sectors and more heavily invested in stable, larger capitalization companies? If there are constraints on the out-of-benchmark holdings, is that reflected in the actual holdings of the portfolio?
Are the sources of performance consistent with the manager’s investment thesis? For example, if the manager employs a bottom-up process, then is their stock selection driving performance? If the manager employs top-down macro themes, then is their sector or country selection driving performance?
Do the measurable risks in the portfolio reflect the manager’s philosophy and the firm’s technological resources? For example, if the manager boasts of highly efficient, proprietary risk-monitoring software, is that evident? If the manager states that their goal is downside protection in bear markets, or upside capture in bull markets, does their performance match this objective?
Wilshire employs an active and rigorous monitoring process that analyzes performance, return attribution, qualitative factors, and other considerations. This approach seeks to capture any changes to a manager’s style, investment process, risk profile or expected alpha so appropriate action can be taken if needed.
Alpha: The risk-adjusted excess return for the portfolio
Efficient Frontier: A set of portfolios that offers the highest expected return for a defined level of risk
This information is for information purposes only. This information represents the current opinion of the firm. Information herein which has been obtained from third parties are based on sources believed to be reliable. Wilshire Funds Management does not represent that such information it is accurate. Statistical data contained herein are as of the dates noted and such information should not be relied on or be the basis for an investment decision. Past performance is no guarantee of future results. Investing involves risk including loss of principal.