Mark Nebelung: You need to decompose whether your managers are macro tilters or stockpickers, and I think a lot of concentrated managers fall somewhere in between.

Richard Dalidowicz: There’s been examples in Australian equities of managers I know really well who have run 25 stocks where 23 stocks have done really well, but the two or three that didn’t have just blown them out of the water.

Tim Dunbar: So what’s driving the interest in concentrated portfolios? One is the desire for alpha, so the belief that these particular managers know what they’re doing, and their investment process can out perform the benchmark, right? And for multimanagers, it’s putting those different managers together in a way that makes sense from an overriding asset allocation perspective.

Michael Bailey: I’d like to ask the portfolio constructors here whether they’ve gone through a similar exercise to what Principal’s done in the paper you received by their global CIO, Mustafa Sagun. They compared a global equity portfolio comprised of eight of their products – the full range from US core, growth, value and small cap to the same in international – to a global equity portfolio consisting of their Global Core fund alone. And they found the Global Core provided about half the coverage ratio – so more active – for about 25 per cent less fees. Richard, I know AustralianSuper has about 15 international equity managers – dare I say it, have you ever compared that portfolio on an after-tax, after-fees basis to, say, a single enhanced passive manager?

Richard Dalidowicz: Of course. We’re aware that the risks we take can actually be offsetting. But we focus more on juicing up the return, not the risk aspects. The risk is just a backward looking thing. You know, it’s an indicator, sure. It gives you an idea about whether managers are true to label. But the challenge is to look forward. The question I’d like to ask is that in today’s narrow market environment, there’s only two sectors that are doing really well – materials and energy. And in this environment do you guys think, on average say, a concentrated manager would perform better than a broad manager. Say one holding 30 stocks versus 200?

Laurence Irlicht: Any manager that happens to have been holding materials and energy, regardless of whether they’re concentrated or not, they’re going to have been doing well. And if they happen to be holding financials and property trusts – not so well recently.

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