Drifters and Huggers

This article offers two reasons characteristic drifters perform better than index huggers. As what have been argued in an earlier study, there is a difference between an equity manager's style and resulting portfolio characteristics. To increase the chance of above-average returns, the authors...

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Bibliographic Details
Published inJournal of Financial Planning Vol. 20; no. 3; p. 42
Main Authors Callahan, Craig T, Howard, C Thomas
Format Trade Publication Article
LanguageEnglish
Published Denver Financial Planning Association 01.03.2007
Subjects
Differences
Equity
Management styles
Portfolio management
United States > US
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Summary:This article offers two reasons characteristic drifters perform better than index huggers. As what have been argued in an earlier study, there is a difference between an equity manager's style and resulting portfolio characteristics. To increase the chance of above-average returns, the authors believe a manager must be allowed to pursue a consistent style and allow portfolio size and value/growth characteristics to drift over time. The authors present the results from studies and propose two reasons drifters perform better: 1. Drifters perform better because restricting a manager to a single characteristic box makes it difficult, if not impossible, to pursue an equity style. 2. Drifters perform better because they are free to take advantage of strong characteristic reversal effects in stock returns. Rather than being criticized or forbidden, characteristic drift should be encouraged.
ISSN:1040-3981