When Conviction Counts
A skilled active manager's advantage is differentiating from the benchmark and keeping a long-term focus.
MFSE_AMCONV_VIDEO Active Pillar 1- Conviction
Title: When conviction counts
Abstract: MFS Institutional Portfolio Manager, Rob Almeida and Senior Managing Director, Global Client Group, Mike Cantara highlight a skilled active manager's advantage in differentiating from the benchmark and keeping a long-term focus.
ALMEIDA: The difference between average managers and skilled managers are, skilled managers add value over time. And the
three traits that we associate with that are, managers that have conviction, managers that add value in volatile markets, and managers that are able to source return through an integrated research platform and reward collaborative thinking.
So a lot of ways to think about conviction, but I think the easiest way and the simplest way is active share. So active share measures the differential between a portfolio and a benchmark. Managers with an appropriate level of active share that exercise patience generally have conviction.
CANTARA: If we look the same as the benchmark there’s no opportunity to outperform. So it really is going through that process of identifying those investment opportunities that collectively we can come together and feel like there is an analysis advantage that we can bring to the portfolio construction process or to the security selection process.
ALMEIDA: An investor’s greatest toolkit is time, and unfortunately most of them don’t exercise that. Patience has become a very scarce commodity. You could have a brilliant investment
thesis, and you’ve uncovered an opportunity that no one else has. So you invest in that opportunity. And the second part of that is, you wait.
CANTARA: So we know that prices move a lot more quickly than fundamentals. And so it's really being able to separate those issues and identify where is a company heading from a fundamental standpoint from a business model.
ALMEIDA: The marketplace today has become more short-term oriented than ever before. So the ability to outperform the market on near-term information is extremely difficult, or impossible, if it ever was possible. But what's happened is this overemphasis on the near-term is creating greater inefficiencies, in our eyes, in the out years. And that's where skilled managers focus their time.
Source: Martijn Cremers and Ankur Pareek, 2014, “Patient Capital Outperformance: The Investment Skill of High Active Share Managers Who Trade Infrequently,.” Annualized returns relative to the fund’s self-declared benchmark where available, otherwise benchmark that minimizes active share selected. US equity mutual funds 1995–2013.
The views expressed are those of the speakers and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any MFS investment product.