Active boutiques outperform passive managers in volatile markets

Jonathan Stapleton
clock • 3 min read

Boutique asset managers have outperformed both passive indexing and non-boutique active managers in periods of elevated volatility over the past 20 years, latest research by Affiliated Managers Group reveals.

The global asset management firm's study - The independent boutique advantage in volatile environments - built on AMG's earlier work which concluded that boutique firms outperformed indices and non-boutiques and found such smaller active managers also delivered the highest excess returns over passive indexing and non-boutiques in periods of elevated volatility.

The study found that, over the 20 years to the end of 2019:

  • Independent active boutiques delivered nearly three times excess returns against passive indexing when volatility was high. It said the average boutique outpaced its relative index in all 11 equity product categories and delivered 241 basis points of net excess returns relative to indices in periods of elevated volatility, compared to 82 basis points (bps) of outperformance during all other periods.
  • Independent boutiques significantly outperformed non-boutiques in periods of elevated volatility. The average boutique outperformed the average non-boutique in 10 out of 11 equity product categories by an average of 116 bps in periods of elevated volatility and 41 bps in all other periods.
  • Above-average levels of volatility created advantageous levels of dispersion. Extreme market disruptions and high levels of volatility are not prerequisites for boutique alpha-generation, as reflected by the dispersion of excess returns across the volatility percentiles. Rather, above-average levels provide asset dispersion which enhances the outperformance of active managers.

AMG president and chief executive Jay Horgen commented on the findings. He said: "The unprecedented volatility in the market today is prompting investors to consider whether they can afford to take a passive approach to managing their portfolios.

"We believe that active management plays an important role in client portfolios at all times, but now more than ever. Two decades of data strongly indicate that now is the time for investors to turn to independent active boutique managers - independent boutiques generate the highest excess returns, relative to both passive indexing and larger active managers, in periods of elevated volatility.

"The contrast between active boutiques and passive indexing in periods of volatility could not be more stark, with independent boutiques outperforming indices in every investment style studied, by an average of 241 bps."

Horgen added: "With their unique entrepreneurial cultures; highly focused, specialised investment processes; and direct ownership of their businesses, independent boutique firms are most closely aligned with clients' interests and able to protect capital and nimbly pivot to the investment areas of greatest opportunity in general - and especially in times like these."


The study incorporated data from more than 1,300 investment management firms around the world and nearly 5,000 institutional equity strategies encompassing approximately $7trn (£5.6trn) in assets under management. The study analysed rolling one-year returns for the trailing 20-year period ending 31 December 2019, across 11 broad institutional equity product categories, on a strategy-by-strategy basis.

The research used the Chicago Board Options Exchange Volatility Index (VIX) as a proxy for market volatility, and looked at the annual average daily spot rates over the 20-year historical period. Throughout this supplemental analysis, years of high volatility were defined as years during which the annual average VIX was above 20, and years where the annual average for the index was below 20 are referred to as periods of lower volatility.

The MercerInsight database was utilized for return data. The study estimated boutique net excess returns as compared to indices - incorporating boutiques' available published or "rack" fee rates in the database - in order to assess net value creation for investors.

The classification of investment managers and their corresponding strategies as boutiques in the study was based on four criteria. First, principals were required to hold a significant amount of equity in their own firms, defined as at least 10% ownership. Second, investment management was the sole focus of each firm; investment managers captive in broader financial services platforms were excluded. Third, firms with assets under management greater than $100bn were not eligible for inclusion. Finally, exclusively "smart beta" or fund-of-funds platforms were removed from consideration, as the analysis concentrated on active boutique investment managers with distinct investment philosophies and highly-focused investment processes.

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