High Concentration Managers Outperform
Would you rather have 3,000 random YouTube voices giving you advice on maintaining your vehicle or would you rather have a BMW expert, a tire & wheel expert, and an experienced detail expert who can make your car look and feel new?
That’s the difference between portfolios bloated with thousands of holdings and portfolios built by high-concentration managers who do deep research. I’m not talking about not diversifying your portfolio. I’m talking about diversifying with intent.
Example
I’ve had clients come to me from other advisors who were frustrated.
They told me:
- Reviews felt like a history lesson. It was just a recap of what already happened.
- Their accounts seemed to mimic the market, ebbing and flowing with no sense of control.
- They were paying for advice, but didn’t feel they were getting proactive management.
One client said, “I feel helpless. My portfolio just rides the market, and I don’t see where the strategy is.”
That’s exactly what happens when portfolios are diluted across thousands of holdings with no conviction.
The Problem: Too Many Holdings
Wall Street often teaches that more diversification is always better. But how much do you need and is there such a thing as too much? The best institutional managers succeed because they go deep, not wide.
- Berkshire Hathaway built its reputation by making concentrated bets on companies it knew inside and out.
- Harvard’s Endowment, Coca-Cola’s pension, Delta’s pension, all rely on managers who own fewer holdings but know them deeply.
- Research shows concentrated portfolios often experience lower volatility than the market, because the managers actually understand the businesses they own.
Why Concentration Works
- Focus = conviction. Managers with 30–50 holdings can research each company thoroughly and still provide diversification.
- Research-driven results. Like Buffett, they meet management teams, analyze fundamentals, and invest for the long haul.
- Reduced noise. Thousands of holdings dilute performance and create duplication. A concentrated portfolio eliminates that.
- Forward-thinking management. Clients feel more in control because managers are proactive, not just reactive.
The SMA Advantage
This is where Separately Managed Accounts (SMAs) change the game:
- With an SMA, you can access high-concentration, institutional research-driven portfolios.
- You own the individual stocks directly — no hidden overlap.
- You avoid paying both the fund company and your planner — you pay a small fee for the research, and your advisor only for financial planning.
- It’s ETF-like cost with intentional, forward-looking investing.
In Summary
When it comes to investing, more isn’t better, better is better.
High concentration managers with deep research have outperformed precisely because they focus and look forward. And with SMAs, you can access the same approach: fewer holdings, stronger conviction, lower costs, and proactive management that helps you feel in control.
Ready to feel more in control? Let’s explore SMA portfolios that look forward, not backward. Let’s build your portfolio the way institutions do.
References
- Cohen, R. B., Polk, C., & Silli, B. (2010). Best Ideas. Review of Financial Studies.
- Buffett, W. Berkshire Hathaway Annual Letters.
- Kitces, M. (2016). Using Active Share to Avoid High-Fee Closet Indexers.