Thijs Aaten

Acadian Asset Management has an interesting study on concentrated portfolios (“𝗖𝗼𝗻𝗰𝗲𝗻𝘁𝗿𝗮𝘁𝗲𝗱 𝗘𝗾𝘂𝗶𝘁𝘆: 𝗣𝗿𝗮𝗰𝘁𝗶𝗰𝗲 𝗩𝗲𝗿𝘀𝘂𝘀 𝗣𝗿𝗲𝗺𝗶𝘀𝗲” https://lnkd.in/eZsdkM9f ) Being a systematic manager which invests in very diversified portfolios, Acadia’s conclusions are not a surprise: “𝘉𝘶𝘵 𝘪𝘯 𝘢𝘯 𝘦𝘮𝘱𝘪𝘳𝘪𝘤𝘢𝘭 𝘢𝘯𝘢𝘭𝘺𝘴𝘪𝘴 𝘰𝘧 𝘢 𝘣𝘳𝘰𝘢𝘥 𝘴𝘦𝘵 𝘰𝘧 𝘤𝘰𝘯𝘤𝘦𝘯𝘵𝘳𝘢𝘵𝘦𝘥 𝘴𝘵𝘳𝘢𝘵𝘦𝘨𝘪𝘦𝘴, 𝘸𝘦 𝘧𝘪𝘯𝘥 𝘯𝘰 𝘦𝘷𝘪𝘥𝘦𝘯𝘤𝘦 𝘵𝘩𝘢𝘵, 𝘪𝘯 𝘱𝘳𝘢𝘤𝘵𝘪𝘤𝘦, 𝘵𝘩𝘦𝘺 𝘰𝘶𝘵𝘱𝘦𝘳𝘧𝘰𝘳𝘮 𝘢𝘴 𝘢 𝘨𝘳𝘰𝘶𝘱.” Concentrated equity strategies have drawn considerable interest from institutional investors in the long-only universe: frustrated with active fees charged for closet indexing, the premise of investing with stock pickers who focus on a limited set of “high conviction” holdings has intuitive appeal. The main result from the study is “𝘵𝘩𝘢𝘵 𝘸𝘩𝘪𝘭𝘦 𝘥𝘪𝘴𝘤𝘳𝘦𝘵𝘪𝘰𝘯𝘢𝘳𝘺 𝘴𝘵𝘰𝘤𝘬 𝘱𝘪𝘤𝘬𝘪𝘯𝘨 𝘢𝘣𝘪𝘭𝘪𝘵𝘺 𝘴𝘶𝘳𝘦𝘭𝘺 𝘦𝘹𝘪𝘴𝘵𝘴 𝘢𝘮𝘰𝘯𝘨 𝘪𝘯𝘴𝘵𝘪𝘵𝘶𝘵𝘪𝘰𝘯𝘢𝘭 𝘮𝘢𝘯𝘢𝘨𝘦𝘳𝘴, 𝘤𝘰𝘯𝘤𝘦𝘯𝘵𝘳𝘢𝘵𝘪𝘰𝘯 𝘪𝘴 𝘯𝘰𝘵 𝘢𝘯𝘺 𝘦𝘢𝘴𝘺 𝘴𝘰𝘭𝘶𝘵𝘪𝘰𝘯 𝘧𝘰𝘳 𝘪𝘯𝘷𝘦𝘴𝘵𝘰𝘳𝘴 𝘭𝘰𝘰𝘬𝘪𝘯𝘨 𝘵𝘰 𝘣𝘰𝘰𝘴𝘵 𝘢𝘤𝘵𝘪𝘷𝘦 𝘱𝘦𝘳𝘧𝘰𝘳𝘮𝘢𝘯𝘤𝘦”. Strategies with the most concentrated portfolios represent a disproportionate fraction of the best performers, but also of the worst performers: these strategies are either very good or very bad, no middle ground. “𝘛𝘩𝘪𝘴 𝘪𝘴 𝘪𝘯𝘵𝘶𝘪𝘵𝘪𝘷𝘦: 𝘤𝘰𝘯𝘤𝘦𝘯𝘵𝘳𝘢𝘵𝘦𝘥 𝘴𝘵𝘳𝘢𝘵𝘦𝘨𝘪𝘦𝘴 𝘥𝘦𝘭𝘪𝘣𝘦𝘳𝘢𝘵𝘦𝘭𝘺 𝘧𝘰𝘳𝘨𝘰 𝘥𝘪𝘷𝘦𝘳𝘴𝘪𝘧𝘪𝘤𝘢𝘵𝘪𝘰𝘯, 𝘢𝘯𝘥, 𝘵𝘩𝘦𝘳𝘦𝘧𝘰𝘳𝘦, 𝘥𝘪𝘴𝘱𝘭𝘢𝘺 𝘩𝘪𝘨𝘩𝘦𝘳 𝘭𝘦𝘷𝘦𝘭𝘴 𝘰𝘧 𝘢𝘤𝘵𝘪𝘷𝘦 𝘳𝘪𝘴𝘬.” This is also common sense: no one ever said stock picking is easy and for everyone. However, I believe the reason for the aggregate underperformance is due not to concentration per se, but rather to execution (as discussed in this book review https://lnkd.in/eWuZ2X_u ): 𝘁𝗵𝗲 𝗿𝗲𝗮𝗹 𝘀𝗸𝗶𝗹𝗹 𝗶𝗻 𝘀𝘁𝗼𝗰𝗸 𝗽𝗶𝗰𝗸𝗶𝗻𝗴 𝗶𝘀 𝗻𝗼𝘁 𝗶𝗻 𝘀𝗲𝗹𝗲𝗰𝘁𝗶𝗻𝗴 𝘁𝗵𝗲 𝗯𝗲𝘀𝘁 𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁𝘀, 𝗯𝘂𝘁 𝗶𝗻 𝘄𝗵𝗮𝘁 𝘆𝗼𝘂 𝗱𝗼 𝗮𝗳𝘁𝗲𝗿, 𝘄𝗵𝗲𝗻 𝘀𝘁𝗼𝗰𝗸𝘀 𝗲𝗶𝘁𝗵𝗲𝗿 𝗴𝗼 𝘂𝗽 𝗼𝗿 𝗱𝗼𝘄𝗻. 

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The Benchmark Index behaviour with higher Highs and higher Lows in past weeks on the Chart decipts a Curved-up posture implying that Consolidation is apparently over. An Ascending Channel has emerged/formed with a mild Angle of Elevation. The KSE-100 Index closed for the week at 78897 levels posting a gain of 409 points on WOW. The Right Flank or Arm of the Inverted Head and Shoulder is extended in terms of Time and Space and has transformed into new Ascending Channel PPRR creating room for moves to Minor Resistance RR at around 80000 which is Celing of the Channel and Necline QR at 81000. The Immediate Resistance is OO at 79260. The Major Resistance is Ascending Axis DD in proximity of 82000 and Strong Resistance is Horizontal Axis BD at 82500 level. The Ascending Channel PPRR is in Nascent stage and for it to remain intact the Floor PP or the Immediate Support in proximity of 78400 should hold. The Minor Support is Horizontal Axis PK at 77000 level whereas Major Support is Ascending Axis DF in proximity of 74400 level. #technicalanalysis #indexanalysis #indexfunds #forex #market #psx #kes100 #trading #economy

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In a typical first-loss structure, the Manager contributes personal capital of 10% of the allocation—the first-loss tranche—which absorbs any initial losses before affecting the investor’s senior tranche. This alignment ensures that the Manager is highly motivated to avoid early losses. https://lnkd.in/ggdv5DGR #familyoffices #seedcapital #esg #investing #diversityandinclusion #hedgefunds #privateequity #emergingmanagers

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In a typical first-loss structure, the Manager contributes personal capital of 10% of the allocation—the first-loss tranche—which absorbs any initial losses before affecting the investor’s senior tranche. This alignment ensures that the Manager is highly motivated to avoid early losses. https://lnkd.in/ggdv5DGR #familyoffices #seedcapital #esg #investing #diversityandinclusion #hedgefunds #privateequity #emergingmanagers

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China's data last week has the market fretting about the recovery being "too uneven". Following the data dump, I chatted to Bloomberg about the state and the fate of the Chinese economy. Stepping back for a little perspective, China's property crisis over the last two years is akin to their very own GFC. It took the US economy close to a decade to heal the wounds from such a deep debt crisis. It wouldn't be unusual for China to need just as long to heal hers. During this time, new growth engines have to come to the fore. To keep things ticking over until then, Beijing can only control what it has always been able to control: investment into manufacturing and infrastructure. For now, those government-led growth engines are affording some stability. I just wouldn't get over-excited about any new piece of stimulative policy to provide the silver bullet to China's growth malaise.

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🔍 Smaller Caps, Bigger Potential? 🚀 Sometimes, you write an article, and during the time of writing, things just start to happen. This was the case for my colleagues Jan de Koning, CFA, CAIA, Pim van Vliet, PhD, and me while writing about small(er) caps. Smaller caps have substantially underperformed mega caps over the last decade. Remarkably, Apple alone is valued at over USD 3 trillion, exceeding the total market cap of the entire Russell 2000 Index. However, just as we finished our article, lower-than-expected inflation data triggered one of the strongest short-term comebacks for small caps. In our article, we take a long-term perspective and document that the current rally in small caps is probably more than just a short-term rebound. Our evidence suggests that if (or rather, when -> #now?) this trend reverses, a longer period often sets in, and smaller stocks outperforming mega caps is more often normal than exceptional. 👇 Check out our full article to learn more about the similarities between today's market environment and the dot-com bubble and the role of relative valuation in explaining relative returns. #Investing #SmallCaps #MarketTrends #InvestmentStrategy #FinancialMarkets

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Team Transitory vs.Team Permanent: Tie Game The debate on inflation rages on. Many papers and books have been and will be written on this topic. Ben Bernanke and Olivier Blanchard published a recent research note and working paper investigating disinflation from 2022:Q2 to 2023:Q2 in the United States and Europe which can be found here: https://lnkd.in/ezkUbWbA Their conclusion in brief: “Team Transitory was right that shocks to prices (e.g., for energy and food) would have short-lived effects on inflation, but it did not anticipate that there would be such a long sequence of shocks, leading to an extended period of inflation. Team Permanent was right to worry about labor market tightness but significantly overestimated its likely contribution to inflation early on.” #inflation #federalreserve #equity #stocks #bonds #interestrates

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China's Big Impact on EM Active Fund Performance China’s remarkable rally following last month’s stimulus announcements has had a pronounced impact on EM active fund returns. Below is a scatter chart showing China & HK fund weights versus September returns, highlighting a clear positive correlation. From an allocation standpoint, Value funds were the star performers, returning 6.8% on average for September after moving to overweight during the early part of 2024. However, top performers came from a variety of strategies. Leading the way were: •Morgan Stanley Developing Opportunity Fund (Aggressive Growth) • Redwheel Global Emerging Markets (GARP) • Arga Emerging Markets Fund (Value) • Pzena EM Select Value • Virtus NFJ Emerging Markets Value Holding a China overweight took real conviction while most of the market remained underweight amid widespread bearish sentiment. Copley Fund Research Limited #emergingmarkets #activemanagement #investing #stockmarkets #China

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Hi The attached note looks a China’s pivot from incremental and modest policy stimulus to providing more aggressive support for its economy. The key points are as follows: A move towards more aggressive fiscal policy stimulus (assuming its confirmed by the National People’s Congress Standing Committee) and property support measures should help drive a mild cyclical upswing in China’s economy. However, it’s doubtful it will be enough to reverse longer term structural problems facing China – around excess saving, demographics and growing state control. The Australian economy is less sensitive to China than it used to be, but a stimulus driven cyclical boost to the Chinese economy is still positive for the Australian economy, share market and the $A. All the best Shane

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"Asset Pricing with Cognitive Biases and Deep Learning": "Biased expectations can explain two central puzzles in the asset pricing literature: the equity premium puzzle and the excess volatility puzzle." https://lnkd.in/euFNTFM7

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Paper: "Systematic tail risk [of assets]... proxied by a generalized tail dependence coefficient... is compensated with an economically sizeable and statistically significant premium." https://lnkd.in/e4CKna3Y

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Namara Wealth Advisors exited long position on AT1/COCO #Bonds, that we had initiated on the wake of Credit-Suisse AT1 default. #Creditspreads ON Coco Tier1 (white) are converging toward cycle lows at 360bps while 10Y US Treasury (orange) has come down substantially (370bps) compressing the total return to just 200bps above overnight cash. This 200bps risk premium is no longer attractive at a time when #Volatility (blue) is rising and #Equity/ #Bond #correlation has turned negative. #fixedincome #markets #allocation

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Fixed Income Forward: June 2024: New hierarchy emerges in bond risk premiums Much has happened in fixed income since the start of the year. But greater differentiation in bond markets has been slow in coming. Only now do we begin to see serious signs of a new hierarchy in risk premiums emerging. By Franck Dixmier, Global CIO Fixed Income and Georgios Georgiou, Global Head Product Specialists Fixed Income at Allianz Global Investors. #FixedIncomeForward #FixedIncome #Bonds #NavigatingRates

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We’re getting a lot of questions from clients and consultants about the recent gilt market moves. Please see the blog below to find out more.

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Turbulent times! With major dislocations in equity markets, particularly in Japan, it was a dismal day for equities yesterday. Initially triggered by weak economic data and disappointing earnings reports from the big tech companies, the equity sell-off continued. So what happens now? There is still a lot of uncertainty about the further unwinding of positions and as always, timing the market is almost impossible. Our key message is to stay calm for now, and for short-term oriented investors the current environment provides lots of trading opportunities. It was a pleasure to speak to Helen Freer, CFA about the latest developments in equity markets on the #MovingMarkets podcast this morning. Also on today’s podcast, Jonti Warris summarises yesterday’s market action and gives us the key numbers, and later Manuel Villegas Franceschi talks about digital assets and how the latest correction in crypto markets has been driven by some of the very factors driving the equity market rout. The #podcast is published daily at 9am CEST – you can subscribe using the links below. Do tune in! Apple: https://lnkd.in/eNDfePNj Spotify: https://lnkd.in/e2v77-8C

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A clear example of Ghanaian excellence. Great work from Paul Azunre and his team. In my view, 5% of new pension contribution every year ought to go towards investing in brilliant ideas and Ghanaian startups like this to help solve some of the country and the continent’s problems. We just need to get 2 or 3 right to pay for all the others in terms of commercial implications. The current PENSION allocation hasn’t worked and needs to be reevaluated ASAP

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