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Ted

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6
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2023-08-05
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2023-08-05
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  1. “You profess to have an edge on these types of decisions. Rather than diving in to develop a false sense of security, the lessons from peers abroad and stockpickers in emerging markets with concentrated indexes is one of communication. It's less about what to do and more about how to educate your constituents on the choices at hand and expected outcomes to come. Proper communication is necessary because the one decision will in fact determine relative performance in equities. It's a very different dynamic than any I remember in this country, but it's the same one that the manager in Korea faced twenty years ago. One thing is for sure, communication and understanding is what gets us to the other side. The naivete that led that Korean manager to get Net Short his favorite name was not a good look, irrespective of what happened with Samsung's stock.”

    2023-08-05 · Capital Allocators · WTT: Active Management Today is a Single Decision · IDENTIFIED FROM THE TRANSCRIPT · source

  2. “Same. The winners will make the right call on their allocation to the MAG 7, and that's about it. The entire investment process and the typical importance of behavioral, analytical, information, or technical edge will be swamped by that one decision when assessing returns for the foreseeable future.”

    2023-08-05 · Capital Allocators · WTT: Active Management Today is a Single Decision · IDENTIFIED FROM THE TRANSCRIPT · source

  3. “The stocks. The SP 500 and MSCI Aqui have experienced similar concentrations in the past, but never has the concentration been in the hands of stocks with roughly the same risk factors. In this case, large cap, high beta, growth, and technology. As a result, active management today comes down to a single decision. How much do you own of the MAG seven? Many managers have a large position in one or more of the gang, but few have twenty five percent of their portfolio invested. All the work of active managers that goes into creating an investment philosophy, searching for uncovered gems, conducting deep fundamental research, exercising sound decision making, and constructing rigorous portfolios is dwarfed at the end of the day by a single decision. This setup has me thinking about first principles of an allocation to equity.”

    2023-08-05 · Capital Allocators · WTT: Active Management Today is a Single Decision · IDENTIFIED FROM THE TRANSCRIPT · source

  4. “Of this soaring index performance has been the magnificent seven. These technology enabled businesses emerged as the winners of the Internet, capturing the lion's share of all the economics created from the technological revolution. Their business success translated into stock performance as well. An extreme example in the first half of twenty twenty three, the Mag seven comprised ninety five percent of the performance of the SP five hundred and seventy percent of MSCI Acqui. After this incredible run, the MAG seven comprises twenty five percent of the SP five hundred and eighteen percent of the MSCI Acqui. To put the dominance in perspective, the market cap of Apple today is larger than that of the entire Russell two thousand index and the MAG seven weighting in the NASDAQ is so high at fifty one percent that the index had to rebalance away from the”

    2023-08-05 · Capital Allocators · WTT: Active Management Today is a Single Decision · IDENTIFIED FROM THE TRANSCRIPT · source

  5. “Long and sixty percent short. So despite the seemingly large twenty percent long position, he effectively had a twenty four percent short position through the index and was four percent net short his favorite stock. The concentration of the Cospy index was wreaking havoc on his bottom up stock approach to security selection and position sizing. Since the GFC, the underperformance of active managers has been a repeated refrain. Index funds have been the beneficiaries with Vanguard leading the pack and overseeing seven trillion dollars in assets. The flow of funds to indexes has also been the correct market call. The SP five hundred compounded a twelve point two percent for the last five years and thirteen point eight percent over the last fourteen, far surpassing most markets around the world and its long term returns of ten point nine percent over the last fifty years.”

    2023-08-05 · Capital Allocators · WTT: Active Management Today is a Single Decision · IDENTIFIED FROM THE TRANSCRIPT · source

  6. “This is what Ted's thinking. Active management today is a single decision comes from a few conversations I've had recently with CIOs about the underperformance of long-only managers who are underweight the magnificent seven. It got me thinking about the ramifications of stock index concentration on active management. About twenty years ago I sat down with the leading longshort hedge fund in Korea. The portfolio manager spent forty minutes offering an articulate bulkcase for Samsung in which he held a twenty percent long position. When he finished his impassioned presentation, I responded with a single question. That sounds great, but why are you net short Samsung? The manager had a long book comprised of individual stocks and a short book comprised of Cospi index options and futures. Samsung comprised forty percent of the COSPI index. His fund was a hundred percent.”

    2023-08-05 · Capital Allocators · WTT: Active Management Today is a Single Decision · IDENTIFIED FROM THE TRANSCRIPT · source