Investors looking to invest in concentrated stock portfolios must be willing to tolerate the risk of volatile performance, according to the latest research from van Eyk.
"When considering concentrated equity strategies, investors need to be mindful that stock specific positions and portfolio biases tend to be more pronounced in these funds. As a result, relative returns are likely to be more volatile than for more diversified managers, particularly over shorter periods of time," van Eyk head of research Jerome Lander said.
Stock specific as well as sector, size and style risk contributes to the larger tracking errors and active risk of concentrated managers, while many managers also displaying significant industry sector biases, according to van Eyk's latest sector overview and ratings for fund managers in the concentrated Australian equities sector.
The research found that managers reviewed typically hold less than 30 stocks in their portfolios and have much higher tracking errors (active risk) than managers in the van Eyk October Australian equity review.
Van Eyk found that size bias is another characteristic, with all those researched being underweight in the 50 largest companies by at least 12 per cent, as at the end of August this year.
The review consisted of six managers, of which two were classified as value managers, two as style neutral and two as growth managers. Three A, one BB and two B ratings were awarded.
