Don't Invest in Funds That Do This!
The two funds here that are actively managed, CNQ and BKCG, offer absolutely no information about how they select their names.
Um, and then the output looks a lot like, you know, the top 20 30 names in um, the index with a heavy tilt towards tech.
Um, look, I've been in manager research for most of my career, 20 years of the 25 that I've been in and in in this this business.
And um, you can tell me stuff without telling me stuff.
Like when you sit down your investment committee and you screen some you have a screen and you have factors you screen for and it gives you a universe right you're going to select from that universe using certain expertise but you can at least tell me what you're screening for and these don't in fact at least BKCG gave me something like some general idea I actually wrote down they have like a list of things that they look for industry leadership a global prominence uh strength of management strength of financials and then growth expectations based on their proprietary model of how they calculate that.
Um for um CNQ, I watched every video on that website on the website for ALA.
I read through the statement of additional information.
I read through the I know nothing about how this the manager selects stocks.
I know literally nothing other than we want to be invested in the names of the future.
Like how that's defined, what they look for, how they select, how they nothing.
I got no idea how they pick their names.
And for that reason, it's really hard to like take that leap to, as Tony said, pay 55 basis points for active management when you don't have any information about how the manager is generating alpha and and no ability to actually check if what they say matches the output, right?
Because a lot of reasons why you want to know these things is because you're trying to set return expectations.
So you kind of understand how this might behave over a market cycle.
In order to do that, you oftent times take the information they tell you and then say, "Okay, if I did like a plain vanilla version of this, would it move?" Maybe not get you the same returns, but at least give you movements in the same direction so that you can understand if I did this plain vanilla versus how they're doing it.
Um, are they adding some level of skill that I can't get, right?
But I can't do that because I have no idea what they're doing.
And to Tony's point, you want to see high active share in a concentrated portfolio.
That's why you buy a concentrated portfolio for the active share.
If you don't have high active share, and by high active share, Tony said over 50.
It should be in the 70s, if not higher, if you're going to do a concentrated portfolio and take that kind of risk.
If you don't get that, then you're paying up for closet indexing.
You're not actually getting a concentrated portfolio.
That's an alpha generator.
