Using generic benchmarks to present manager styles
David E. Tierney, Kenneth J. Winston · The Journal of Portfolio Management · 1991
T here are a number of reasons to characterize manager styles. Plan sponsors want to see how diverse their managers’ styles are; managers want to see how their style has changed over time; and conhsultants want to find styles that are not represented in a sponsor‘s current lineup of managers. There may be dozens of factors involved in a precise characterization of a manager’s style. Computers have no problem manipulating dozens of factors, but it is impossible for people to grasp fully and intuitively the meaning of a set of dozens of numbers. How can we capture a manager’s style in a way that makes intuitive sense to people? One approach is to show how a style compares to a limited number of well-known styles. One manager’s style, for example, could be similar to a “generic” large-cap growth style. We have created a process that reduces the amount of information to characterize a manager’s style from dozens of factors to a few numbers that can be grasped quickly in an intuitively appealing graph. We’ll also show how to analyze the information content of these ”distilled” numbers to check how well the method captures style.