Not So Risky After All?
Contrary to popular belief, focused portfolios, or those with 50 or fewer securities, have not historically produced more risk than traditional portfolios over 3-, 5-, and 10-year periods according to a recent Greenwich Associates study.1 Additionally, institutional investors believe such portfolios offer greater alpha potential.

  • Measures of risk such as beta and down market capture have generally been lower in focused strategies than in highly diversified portfolios across many domestic equity asset classes and over 3-, 5- and 10-year time horizons. Beta measures the volatility of a portfolio in comparison to the broader market. Down market capture measures an investment manager’s overall performance relative to a benchmark in down markets.2

  • Thus focused portfolios have delivered lower risk than diversified strategies over these time periods. According to research, many investors expect that a portfolio of just 50 stocks can realize the primary risk-reduction benefits associated with a diversified portfolio.3

  • Many investors also consider high-conviction focused portfolios a source of outperformance, which is supported by various academic studies (see Focused Portfolios: Swinging at the Right Pitches). 

1,2,3 Greenwich Associates. The Power of Focus: Looking for Alpha in a Sea of Beta, 2017.

The views expressed are the views of Fred Alger Management, Inc. as of June 2018. These views are subject to change at any time and they do not guarantee the future performance of the markets, any security or any funds managed by Fred Alger Management, Inc. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.

Risk Disclosure: Investing in the stock market involves gains and losses and may not be suitable for all investors. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Many technology companies have limited operating histories and prices of these companies' securities have historically been more volatile than other securities, especially over the short term. Technology companies may also face increased competition, government regulation, and risk of obsolescence due to progress in technological developments. 

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