Of course, there’s nothing wrong with a value manager’s tilting toward growth — assuming that his clients’ guidelines permit it, and assuming that he’ll know when to tilt back toward value. In general, an active manager can add value by either stock selection or sector allocation, and there’s no insurmountable reason to prefer one technique to the other. There are more potential opportunities in stock selection, of course (500 stocks vs. 10 sectors), but a manager who’s consistently good at allocation among sectors can be an excellent manager.
Asset owners may well be indifferent between receiving selection alpha and receiving allocation alpha. But they should understand the source of their managers’ value added. And they should realize that allocation alpha can be fleeting. If value starts to outperform growth, the allocation shoe will be on the other foot.
This article was written by Craig Lazzara, global head of index investment strategy, S&P Dow Jones Indices.
© S&P Dow Jones Indices LLC 2013. Indexology® is a trademark of S&P Dow Jones Indices LLC (SPDJI). S&P® is a trademark of Standard & Poor’s Financial Services LLC and Dow Jones® is a trademark of Dow Jones Trademark Holdings LLC, and those marks have been licensed to SPDJI. This material is reproduced with the prior written consent of SPDJI. For more information on SPDJI, visit http://www.spdji.com