APT Exit Strategy, page-30

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StefanF

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21/01/21

12:19

Post #: 50337764
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Originally posted by pastperformer ↑

This may or may not be a useful framework for some of you. But this is how I construct my portfolio.

I'll take one of the best Australian fund managers as an example - Hyperion High Conviction Fund.

A high conviction fund, in essence is a fund managers way of investing a large % of investors capital in their best idea's. Hyperion currently have their largest holdings as APT and WTC, which only make up 11% of their portfolio. They mandate to never have more than 13% of their portfolio in any one stock. That is a High conviction level for professional investors. While they may have over 20 stocks in their portfolio (which they do at the moment) they could technically have much less.

My rule is a maximum of 25%, which is nearly double and makes me prone to higher concentration. This is mainly because I don't have investors to report to, and I don't have the time to cover the range of stocks they do. I broadly want 10 good ideas at any one point. APT has been at my maximum allocation for the past 12 months, it has gone over and I've continued to trim over time.

With what I trim, I put into cash and wait for opportunities to buy other stocks. If APT was to drop (as it has historically) I use that cash to then top back up with more APT shares. After the last few weeks I had trimmed APT at $120ish, it then dropped back to 107, so I simply topped back up given it was over a 10% move.

This is the simple way I run my portfolio, so unless APT gives me a reason to sell out of it completely, which it hasn't yet I'll just keep running it at the 25% level. If their are other opportunities which I think have better risk and return metrics then APT i'll consider trimming more. But that hasn't happened yet.

Modern Portfolio Theory would suggest you want over a 20 - 30 stocks in your portfolio to reduce market risk across 10 sectors. However, I think it's really difficult to come up with 20 - 30 really good ideas. For example, I think i really only have 2 or 3 really good thematics and only a few stocks within those I have high conviction on. So adding more stocks to a portfolio may reduce market risk but I think it can also increase investment risk, since you tend to buy stocks just because you want diversification. Which is why I currently only have about 10.

My 2 cents.

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Some good thoughts, thanks for sharing. The problem I have with MPT is that it's impossible for a retail investor to track 20-30 stocks to ensure nothing has fundamentally changed. You can try of course, but you'll never be able to give the DD that a stock really requires.

APT Price at posting: $148.87 Sentiment: Hold Disclosure: Held
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APT Exit Strategy, page-30

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