High active share and greater portfolio concentration are hot topics within active equity management. Together they constitute what is commonly referred to as “high conviction” investing. It is generally accepted that – all other things being equal – both higher active share and greater portfolio concentration are not merely desirable, they are essential for delivering benchmark-beating results.
This paper begins with a brief review of the struggles plaguing active management. It then considers the origins and usefulness of the high conviction movement, describing its shortcomings as well as common reasons for poor implementation. The paper then presents five case studies of actual portfolios engaged in high conviction with mixed results. Finally, the paper concludes with a clear message to asset management companies and their clients that adoption of the revised best practices as outlined is essential to both the effective allocation of capital as well as continuation of a vibrant active management industry.
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