Not only are active managers more likely to outperform their benchmarks in emerging markets, the outperformance is more likely to persist than for managers in the major asset classes, according to a study by Segal Rogerscasey.

The study, published by the consulting firm’s Australian research partner Frontier Advisors, is part of a series which looks for persistence in performance across the asset classes. Generally speaking, it confirms, past performance has little or no predictive quality for future performance.

However, the capacity-constrained sub-asset classes, such as emerging markets or US small caps, behave a little differently and managers can more readily beat their benchmarks. Some, especially in emerging markets, can also consistently beat their peers.

For emerging markets equities, the study showed that 77 per cent of managers outperformed the MSCI EM index in the 10 years to December 2013 and 77 per cent of US small-cap growth managers similarly outperformed their index.

When the top quartile small-cap growth managers for the first five years of the period were judged for relative performance in the second five years, only 36 per cent remained in the first or second quartiles.

With emerging markets equities, however, 86 per cent of the top-quartile managers in the first five-year period, remained in either the first or second quartiles in the second period.

The researchers said that the persistence in emerging markets outperformance was the highest they had seen for studies in any asset classes. They pointed out, though, that the latest research was very “end point dependent”. If they had gone back just one year – ending the study period in 2012 rather than 2013 – the level of persistence would have dropped to 43 per cent.

One of the common elements for emerging markets managers which consistently outperformed was that they tended to invest in ‘quality’ stocks with high return on equity.

The research was published with the latest Frontier client newsletter: View here.