active management

8.5 in.
AC TIVE MANAGEMENT
11.0 in.
• We are active managers who invest according to a consistent, research-focused philosophy and process.
• We believe markets are generally inefficient and that skilled active management can exploit
those inefficiencies.
• In our asset allocation portfolios, we tactically adjust target weightings to try to take advantage of
shorter-term market trends.
• Active managers should be judged on their performance over the long term.
at USAA brings a wealth of training and experience
across asset classes and investment sectors.
ne of the most vigorous debates in fund
investing pits the proponents of a passive
approach against those who favor
active management.
O
BENEFITS OF RESEARCH
We fall squarely on the side of active management,
which is one of the central pillars of our approach to
portfolio construction. Our investment philosophy
embraces a long-term balance of risk and return for
our managed account and mutual fund clients, and
we apply that philosophy on a consistent basis using
our research-focused investment process across asset
classes. The research and portfolio management team
Research is one of the key ways that active managers
can distinguish themselves, both in terms of identifying
attractive investments to own and identifying
unattractive investments to avoid. This ability to create
a customized mix of securities — including equities,
bonds and alternative investments — can benefit
Our research process: Striving to produce superior, risk-adjusted returns for our members
USAA
W E A LT H M A N A G E M E N T
0666_207414_WM_ACT_MGMT_OS-UIS
15UIU666
8.5
15UIQ0018
138559
GH
New
11/13/15 16:19 PM
Vendor 11/13
CMYK
J. Coy
11
1/0
Internal
C. Wieters
S. Condron
L. Hancock
GH
1 of 4
J. Miller
1
8.5 in.
11.0 in.
risk-adjusted performance over a full market cycle.
Process is where we spend the most time in the
subadvisor review. We gravitate toward outside
managers who follow a systematic, repeatable
investment process and who have a consistent record
of executing on that process. In many cases, we choose
outside managers whose process is rooted in bottomup security selection — a cornerstone of fundamental
active management.
In our asset allocation portfolios, we actively adjust the
target asset class weightings based on inefficiencies
arising from shorter-term market trends of 3–36
months. We do not attempt to time the market by
trading with a narrow focus on the next hour, day, or
even week. This flexibility allows us to exploit market
dislocations as we identify them. We may use a variety
of investment products, including exchange-traded
funds and factor-based funds, when establishing
tactical overweights or underweights. During periods
when markets are fairly efficient, we adjust back to be
closer to the target weightings.
A number of well-publicized studies over the years
have concluded that the average active fund manager
tends to underperform their benchmark over time,
particularly when considering the higher fees needed
to support active management. This finding makes
sense — based on the math alone, it’s almost certain
that the average active fund will trail the corresponding
passive fund after fees are taken into account. This
math also clarifies the objective for active managers:
Be above average.
Active managers have to choose between pursuing
outperformance on an absolute basis (trying to meet
a predetermined return) or on a relative basis (trying
to beat a specific benchmark). We believe trying
to do both at the same time is a loser’s game as it
places too much reliance on risky actions to try to
time the market’s ups and downs. We seek to pursue
outperformance on a relative basis for our clients, which
means performance may be negative for a given period
but the active manager is outperforming its benchmark.
Our thinking is that if we beat our benchmarks over the
long term, we will deliver positive performance without
taking on excessive risk.
Of course, this is easier said than done, but it can be
done. A number of active managers have outperformed
their respective benchmarks over the long haul, some
of them by wide margins, and are doing so with
expense ratios that compare favorably to their peers.
We count ourselves among this group of skilled
managers who put in the time and resources to stand
out from the crowd. No active manager will outperform
its benchmarks over every time period, and there will
be times sticking to our process leaves us out of step
with the market. Active managers should be measured
over a full market cycle that includes bull and bear
markets.
USAA
W E A LT H M A N A G E M E N T
0666_207414_WM_ACT_MGMT_OS-UIS
15UIU666
8.5
15UIQ0018
138559
GH
New
11/13/15 16:19 PM
Vendor 11/13
CMYK
J. Coy
11
1/0
Internal
C. Wieters
S. Condron
L. Hancock
GH
3 of 4
J. Miller
3
8.5 in.
management fees, but whose portfolios look and
behave like an index.
11.0 in.
CONCLUSION
In our view, here’s the fundamental question regarding
active management: “Is the investor getting what
they’re paying for?” The value of active management
is seen in a consistent, well-planned investment
process. Active management strives to outperform
its benchmark in all markets. Investors seeking active
management should steer clear of a growing number
of “closet indexers” — managers who charge active-
Along with skill and hard work, active management
requires the discipline to stick to one’s investment
process, especially during turbulent markets. Volatility,
after all, can be a source of opportunity when you’re
looking at the long term and others aren’t. Over any
given short period, an active manager’s returns can
fall short of the benchmark — the true value of the
manager’s process and its execution will be revealed
over time.
We’re here for you.
Our disciplined approach is built on a tradition of military values
and helping our members achieve their financial goals
877-633-3312 | usaa.com/wealth
Investments/Insurance: Not FDIC Insured ∙ Not Bank Issued, Guaranteed or Underwritten ∙ May Lose Value
USAA Wealth Management is a service of USAA. USAA means United Services Automobile Association and its affiliates. Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc.
(known as USAA Financial Insurance Agency in California, License # 0E36312), and USAA Financial Advisors, Inc., a registered broker dealer. This material is for informational purposes and is not investment
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© 2015 USAA. 207414-1115
USAA
W E A LT H M A N A G E M E N T
0666_207414_WM_ACT_MGMT_OS-UIS
15UIU666
8.5
15UIQ0018
138559
GH
New
11/13/15 16:19 PM
Vendor 11/13
CMYK
J. Coy
11
1/0
Internal
C. Wieters
S. Condron
L. Hancock
GH
4 of 4
J. Miller
4