CINCINNATI, April 4, 2017 /PRNewswire/ -- Touchstone Investments has designed a powerful yet fundamental method to identify truly active asset managers that demonstrate characteristics Touchstone believes have the most potential to succeed. To be considered "Distinctively Active," strategies must exhibit high Active Share – a measure of the portion of a fund's holdings that are different from its benchmark's holdings – and show evidence of five critical elements based on research from Touchstone and academics.
Martijn Cremers and Antti Petajisto introduced the concept of Active Share, stating in their academic research they believe investing differently from the benchmark is necessary in order to outperform the benchmark. Using that and additional research from Cremers as a foundation, Touchstone created the Distinctively Active standard to identify active managers. It requires them to exhibit high Active Share levels, but also identifies five additional factors that must be met, including: skill, conviction, opportunity, patience, and expenses — or SCOPE.
"Many managers who call themselves 'active' often use that label loosely," Steven M. Graziano, president of Touchstone Investments, said. "Active managers are fairly heterogeneous as a group, but investors too often view them collectively as 'winners' or 'losers.' We see both within the vast pool of active managers, and we believe the Distinctively Active lens is a promising way to think about which ones hold the most potential."
Measuring Active Share is only the first step in the fund selection process and in determining whether a strategy meets the Distinctively Active standard. The second step requires fund managers to show evidence of the SCOPE elements: Managers must demonstrate skill in enhancing investor capital and conviction through concentration in a portfolio of "best ideas." They must also have the opportunity to implement their best ideas, patience to allow their investment selections play out, and expenses that are reasonable relative to active management exposure. Each of Touchstone's sub-advisors has a distinctively active approach to managing money when viewed through the SCOPE lens.
"When conceiving of the Distinctively Active concept, we asked: What are the strongest indicators of the potential for success for active strategies?'" Mr. Graziano added. "It's a critical step because many investors have become distracted by trailing period statistics while ignoring other traits we believe are more telling. We certainly don't ignore the past, as it's where we look for evidence of success. However, one-, three- and five-year returns are not the best indicators of skill. We also consider a manager's process, the way portfolios are constructed, and the cost per unit of 'activeness' to determine if a manager is truly active and designed for a different and positive experience relative to passive investing."
About Touchstone Investments
Touchstone Investments is a Distinctively Active mutual fund company committed to providing investors with access to experienced, institutional asset managers as sub-advisors to the Touchstone mutual funds. Touchstone's entire equity fund lineup is comprised of high Active Share funds which means their holdings are highly differentiated from their benchmarks. Touchstone's sub-advisor selection and monitoring process is built upon the conviction that an asset manager's organizational stability, quality of personnel, adherence to investment discipline and soundness of infrastructure represent key components that lead to investment success over time. Distinctively Active and SCOPE are elements of Touchstone's rigorous selection and monitoring process. This methodology has resulted in a diverse but focused product offering that gives investors a full breadth of investment options across styles and asset classes.
The Touchstone Funds are advised by Touchstone Advisors, Inc., a registered investment advisor, and are distributed nationally through intermediaries including broker-dealers, financial planners and institutions by Touchstone Securities, Inc., a registered broker-dealer and member FINRA/SIPC. Touchstone, Touchstone Funds and Touchstone Investments are federal service mark registrations and applications owned by IFS Financial Services, Inc. Touchstone Securities, Inc., Touchstone Advisors, Inc. and IFS Financial Services, Inc. are members of Western & Southern Financial Group. For more information, please visit www.TouchstoneInvestments.com.
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SOURCE Touchstone Investments