“If a big fund … doubles on a position and it becomes 10 per cent of the portfolio, the fund manager loses his job because he has concentration risk,” he said.
“If, on the other hand, he cuts his big winner and adds to his losses to get index weighted again, he will never lose his job.”
Cadence Capital Limited, which can either go ‘long’ or ‘short’ stocks, believes its fund structure and ‘open mandate’ allows it to better exploit opportunities.
“We have got a lot of our own money in this fund, and if the share market is falling and going nowhere, we want to be in cash. If we find stocks that are expensive, we can sort stocks selectively … [and if] we find something that we really like, we buy it and then we hold it [and] we let our profits run and we cut our losses,” Mr Siegling said.
The Australian equities fund, which targets around 20 to 40 core investments (often outside the top 100 Aussie stocks), also believes that institutional fund managers do not really have the scope to do this.
“If the [fund manager] buys in the top 100 and does not do anything too funky, he is going to be okay. [The fact that] he does not make any money is kind of beside the point,” Mr Siegling said.
“Most people playing this fund manager game are not allowed to invest in these stocks, they are not allowed really to invest outside a pretty restrictive mandate.”
