Is there a way to profitably use active management with a portfolio of mutual funds, ETFs, stock baskets or other investment vehicles? The National Association of Active Investment Managers (NAAIM) says there is, and on Thursday issued its third $10,000 challenge to academics, financial professionals and analysts to test the viability and use of active management.
The NAAIM 2011 Wagner Award for Advances in Active Investment Managementis designed to build a better understanding of active investment management approaches and what it takes for these approaches to be successful, William Barack, chairman of the 2011 Wagner Awards committee, said in a statement.
The $10,000 prize will be awarded for the best original paper submitted to the competition. Second and third place papers will receive $3,000 and $1,000, respectively. The deadline for submissions is March 7, 2011. Awards will be announced at the NAAIM 2011 conference, May 2–4, 2011 in San Diego, California.
"NAAIM was founded in 1989 by investment managers who believe passive investing, i.e. your traditional buy-and-hold strategy, is an incredibly inappropriate way to invest," Barack said in the statement. "Passive investing leaves a portfolio completely vulnerable to bear markets. The last 10 years have more than demonstrated how destructive major market declines can be to the hopes and dreams of investors."
According to Barack, active management is risk management. It asks when it is too risky to be invested and when markets are in a definitive uptrend. "The 2011 Wagner Award is a challenge to financial academia and investment professionals to take a hard look at active management and test what works, what doesn't work and how active management might be used to reduce risk in a portfolio and increase opportunities for positive returns across all market environments."
Active management strategies may include trading methodologies such as tactical allocation, exploitable market inefficiencies, hedging techniques, position sizing, dynamic asset allocation, sector rotation and long/short strategies. Typically, an active strategy will involve multiple trading decisions, both buy and sell, throughout a calendar year using mutual funds, individual securities, exchange traded funds, options or financial futures, or derivatives.
NAAIM launched its research paper competition in 2008, and awarded the first $10,000 prize in 2009 to independent trader and quantitative trading consultant Justin Lent for his paper “Tactical Equity Allocation Model (T.E.A.M.) — A Quantitative Approach for Investing in Long-Term Trends by using Short-Term Mean-Reversion Techniques to Optimize Risk-Adjusted Return.” The 2010 award went to Tony Cooper, managing director Double-Digit Numerics, for his paper, “Alpha Generation and Risk Smoothing using Volatility of Volatility.”
The competition is open to all investment practitioners, academic faculty and doctoral candidates in the field. Papers must be of practical significance to practitioners of active investing. An ideal paper would provide evidence of the validity of an active investing approach via an example of a trading system that outperforms the market by some well accepted metric such as risk adjusted return, annual return and drawdowns.