Emerging market active managers: Skilled or stubborn?

This paper examines the impact of active management–intended as an investment policy focusing on specific assets/styles–on portfolios’ risk–return profiles, at country level and at whole market level, with respect to the BRIC area. Active management is often coupled with overconfidence in stock-picking exhibited by those fund managers who overweight the portfolio with securities for which they have a strong belief and perhaps an emotional commitment. To this end, the main question this study wishes to answer concerns whether the lack of portfolio diversification is the consequence of fund managerial skills, generating a positive alpha, or it is determined by their attitude to overestimate private (local) information and their self-ability to beat the market. The study does not find evidences of focused portfolios overperformance, which suggests behavioural biases prevail over a disciplined asset allocation approach.