Why Active Management Is Best For International Small Caps

Over 80% of active international small cap portfolio managers have beat the benchmark MSCI EAFE Small Cap index over the last five years. Even the average manager is besting the benchmark by about two percentage points, so if you’re thinking truly global about a client’s portfolio, and if you believe small caps are the best way to tap a foreign market, then active money management is what you want, says Bram Ziegler, Portfolio Manager for San Francisco based Algert Capital.

Ziegler has some evidence here. They sub-advise for Oak Ridge Investments International Small Cap Fund ([stock_quote symbol=”ORIIX” show=”symbol”]). Since it launched in 2015, the fund is up 20.23%, beating the iShares MSCI EAFE Small Cap ([stock_quote symbol=”SCZ” show=”symbol”]) ETF, which is up 12.5% over the same period.

Ziegler discusses the Algert model of portfolio building with Julie Cooling, Founder and CEO of the RIA Channel. They run six strategies besides international small cap, including global equity market neutral and liquid alternatives.

Algert looks for inefficiencies in global equity markets resulting from behavioral biases of investors. They believe those inefficiencies can best be exploited through a quantitative and repeatable investment process. Their process utilizes three manifestations of market inefficiencies in conjunction with one another to develop a single conviction – an alpha score — on every stock in their investment universe.

They manage three funds for Oak Ridge Investments out of Chicago: International Small Cap ([stock_quote symbol=”ORIIX” show=”symbol”]), Dynamic Small Cap ([stock_quote symbol=”ORSIX” show=”symbol”]) and an all cap developed market fund called the Global Equity Fund ([stock_quote symbol=”OGESX” show=”symbol”]) launched in August 2016.

The firm launched in 2002 when ex-Barclays global research chief and namesake founder Peter Algert thought to build a “best-in-class” systematic, active equity investing model. Algert focuses on managing global absolute return and active long-only strategies for both institutional and private investors. The core investment team has been together since 2004.