Active investment manager portfolios and preferences for stock characteristics

Abstract

The present study investigates the stock characteristic preferences of institutional Australian equity managers. In aggregate we find that active managers exhibit preferences for stocks exhibiting high-price variance, large market capitalization, low transaction costs, value-oriented characteristics, greater levels of analyst coverage and lower variability in analyst earnings forecasts. We observe stronger preferences for higher volatility, value stocks and wider analyst coverage among smaller stocks. We also find that smaller investment managers prefer securities with higher market capitalization and analyst coverage (including low variation in the forecasts of these analysts). We also document that industry effects play an important role in portfolio construction. Copyright The Authors Journal compilation (c) 2006 AFAANZ.

Idiosyncratic volatility and cross‐sectional stock returns in Southeast Asian stock markets

“…, 1989; Bennett et al. , 2003; Pinnuck, 2004; Brands et al. , 2006) could also take into account idiosyncratic volatility.…”

“…, 1989) and Australia (Pinnuck, 2004) find that institutional investors exhibit a preference for securities with low volatility, although more recent studies by Bennett et al. (2003) for the US and Brands et al. (2006) for Australia indicate a shift in preference among institutional investors for stocks with high volatility.…”

Institutional Dividend Clienteles Under an Imputation Tax System

“…Based on the size of the funds in terms of funds under management, the sample represents five of the top 10 Australian institutional fund managers, four ranked 11‐20, five ranked 21‐30 and the remainder are outside the largest 30 managers. A more detailed description of the database is available in Gallagher and Looi (2006) and Brands et al (2006). Comparison of the return on the funds in our sample and the broader population of investment funds provided by Mercer Investment Consulting showed that the two sets of returns were almost identical.…”

“…These indices are constructed to provide an equity performance benchmark for fund managers investing on the Australian Securities Exchange (ASX). According to Brands et al (2006), 5% of the funds in the Portfolio Analytic Database are benchmarked to the S&P/ASX 100, 17% to the S&P/ASX 200 and 78% to the S&P/ASX 300. The study, therefore, uses the S&P/ASX 200 index and the S&P/ASX 300 index as benchmark market portfolios.…”

Industry concentration, excess returns and innovation in Australia

“…For example, Brands et al . () examine the role of GICS industry classifications in the design of a portfolio and document that GICS classification reflects better the industry composition of the ASX and has an important impact on the stockholdings of Australian institutional investment managers. The most recent study by Dou et al .…”