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Masters in Business
At the Money: Building A Concentrated Portfolio
May 8, 2024
Andrew Slimmon, Managing Director at Morgan Stanley Investment Management, discusses the advantages of concentrated portfolios. He emphasizes the importance of truly active funds that differ from their benchmarks. The podcast explores the benefits of focused stock selection, impact of sector diversification, and balancing active management with passive indexing.
12:50
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Quick takeaways
- Concentrated portfolios focus on owning top-performing stocks while reducing underperformers for potential outperformance.
- Factor exposures like value, quality, and momentum are key in determining stock returns and building a diversified portfolio.
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Understanding Concentrated Portfolios
A concentrated portfolio consists of a limited number of carefully selected stocks, typically 10 to 20, focused on owning the best performers while eliminating underperforming ones. Being diversified doesn't necessarily mean owning a large number of stocks; instead, it's about holding assets that are not highly correlated. Active share, around 80-90%, is crucial in distinguishing a concentrated portfolio from the index, leading to potential outperformance over time.
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