Our portfolio construction is a two-fold process: two thirds of the fund is invested with managers that have been selected for their complementary characteristics, while the remainder is invested in products which provide diversification through tactical management (tracker or sector funds…).
When deciding upon these changes, we made a number of observations:
- Increasing the number of funds beyond 5 or 7 fund managers on a single investment theme only reduces risk marginally
- Increasing the number of fund managers increases the “overlap” within the end portfolio, while leaving some sectors or geographies uncovered
- A large number of fund managers have systematic biases within their portfolios, the origins of which can vary (analysis methodology, environment, fund manager experience…)