So a manager that consistently outperforms by 10 per cent, a manager who persistently underperforms by 10 per cent or a manager that doesn’t outperform at all, all have the same tracking error, of zero, because they’re consistent. So you lose some of that information.

And there is another issue in terms of concentration. I’ve never really heard anybody have a good definition of what a concentrated portfolio is. Most of the feedback that I generally have is, you know, something with 25-50 stocks in it. But you know, in Australian equities that could easily represent 5 or 10 per cent of your investable universe. If I look at a global portfolio, if I use that same metric of 5 or 10 per cent in the universe of 6000 securities or so, well shouldn’t I be holding 600 securities for the same level of concentration? But even in that context people are still thinking about 25-50 securities. So that’s been an interesting conundrum.

Amanda White: Let’s throw it to the table to get a few definitions of what you guys actually call concentrated portfolios.

Russell Clarke: It’s somewhat of a theoretical construct. People would typically think, low number of securities, a reasonably large active stock position versus a benchmark.

Laurence Irlicht: You could, if you chose to, select 25 stocks that would probably get you a reasonably low tracking error to the Australian index, if you selected and weighted those 25 stocks appropriately. Look at your top contributors to portfolio volatility. For instance, in the Australian market a few months ago, BHP alone contributed 20 per cent of the total risk for the market. The ASX300, you’ve got 300 stocks – in one sense that doesn’t sound concentrated, but on the other hand everybody knows the Australian market is concentrated. If you look at one stock being 20 per cent of the risk.

Amanda White: What about you, Steven?

Steven Carew: You can have a 100 or 200 stock global manager, but if they’re investing very heavily in say the small cap space, or the emerging market space, that’s very different to if they’re just swimming in the large cap space. So it’s impossible to define and you’ve just got to make an assessment of the overall risks, to see whether there’s a concentration of risk or not.

Michael Bailey: Thinking about it cynically you could almost say it’s somewhat marketing driven. Everyone seems to have released a concentrated version of their original portfolio, a ‘best ideas’ portfolio. To all of the consultants here – what sort of questions do you ask of managers who are offering a concentrated or a ‘select’ version of their core? Do you get them to justify why they are running two products?

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