Do concentrated funds merit a second look in volatile markets?

Research from Nomura and data produced by Morningstar for Investment Week challenge the view concentrated equity portfolios are riskier propositions in volatile markets.

A study from Nomura, assessing 226 actively managed European equity funds with a collective $168bn in AUM, found concentrated portfolios have outperformed over the past decade, largely due to small periods of significant outperformance. This outperformance tends to occur at times of major market stress, when correlation between stocks increases, according to the study. “There have been a small number of occasions of significant outperformance and it is striking that these points have tended to coincide with sharp increases in pairwise stock correlation,” Nomura analysts said. Accordin...