(Bloomberg) -- For active managers who spread out their bets across the world’s largest stock market, these are harsh times on Wall Street. Most Read from...
-- For active managers who spread out their bets across the world’s largest stock market , these are harsh times on Wall Street .Krugman Says China Is ‘Bizarrely Unwilling’ to Boost Demand
It’s a gamble. Whittling down a portfolio can boost the odds of beating benchmarks by giving greater sway to favored picks that win big. Yet it worsens the consequences of being wrong, too. For managers convinced they have an edge, that’s a risk worth taking, says Nancy Tengler, who’s been running concentrated funds since the early 1990s.
While facts such as those might be reason to give up and hug the index for dear life, some fund managers are adopting the opposite approach: shrink down, and hitch fortunes to a shorter list of high-impact names. Bloomberg Intelligence data shows that over the last three years — via either skill or good luck — 35% of the most-concentrated equity ETFs beat the S&P 500, compared with just 17% of the least-concentrated group.
Far from a new concept, how a fund’s returns are affected by its weightings to specific stocks or sectors is among the most researched topic in money management, with a litany of terms like active share informing its principles. At its core, the research tries to disentangle the role of luck and skill in active investing, shedding light on whether any excess return is worth the fees and volatility.
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