Assessing sources of excess return: style analysis for active investing

For an institutional investor it is very important to understand the sources of the excess return generated by both its external and internal asset managers. Certainly, not all excess returns are produced equal – for instance, an asset manager may be very skillful at generating excess returns by timing the market, while another may generate excess returns by having a levered buy- and-hold exposure to a particular asset class. In this sense, the first manager may be generating pure alpha, whereas the second is simply delivering a levered beta. An understanding of the different styles within