Active Concentrated Portfolios

  • A thought-provoking piece (first one in the link) arguing against concentrated equity portfolios – the orthodoxy of the day.
  • Concentrated portfolios are built on the idea of “analytical certainty” which lends itself easily to “overconfidence” and “overweighting hubris”
  • Institutions that hold several such concentrated portfolios, thereby diversifying, might find instead they suffer from other forms of correlation – in terms of stock size (large cap) and style (quality or growth).
  • They will also find that the higher fees charged by concentrated active portfolios add up and don’t average down.
  • Most interestingly concentration “underweights luck” – that term most fund managers have pushed deep into their subconscious.
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