Institutional Investors Increasing Exposure to Focused Strategies

That is defined as 50 or fewer holdings, and is believed to have a higher chance than a diversified portfolio of delivering alpha

In the past 12 to 18 months, 56% of institutional investors have increased their exposure to focused strategies, defined as 50 or fewer holdings, according to a report from Alger in partnership with Greenwich Associates. The report, “The Power of Focus: Looking for Alpha in a Sea of Beta,” is based on a study of more than 90 executives at leading institutions, consultants and broker/dealers.

Additionally, 62% of intermediaries expect increased interest in focused equity products in the next 24 months. Ninety-five percent of intermediaries and 84% of institutional investors believe that a focused portfolio can achieve the majority of the risk-reduction benefits generated by a diversified portfolio, and 76% of intermediaries believe focused strategies have a better chance than diversified strategies of delivering alpha.

“Investors agree that active managers may generate alpha by concentrating assets in their highest conviction investments,” says Davis Walmsley, a managing director at Greenwich Associates and coauthor of the report. “The study demonstrates that there is a shift of assets to focused strategies, given investors’ need to find more sources of alpha.”

Dan Chung, CEO and CIO of Alger, adds, “Alger has expanded its suite of focused portfolios over the past five years because we believe active managers with proven track records who invest in their highest conviction ideas are uniquely positioned to deliver alpha. We are pleased to see that the survey data aligns with our position that focused portfolios with high active share positively affect alpha generation and overall returns.”