How to recognize alpha potential in active equity portfolios

Chasing performance by deviating from a benchmark has long been the hallmark of active managers. But it may be time for a rethink. Our research suggests that investors allocating to core equities should consider refreshing the criteria they use to identify portfolio managers that can consistently beat their benchmarks. Active equity managers continue to face scrutiny. In concentrated markets, it’s become increasingly difficult to outperform because portfolios that diverge too far from index weights in the US mega-caps pay a heavy performance penalty. The mathematics of benchmark risk have raised...