Class is permanent
Investment styles in mutual funds are unique. The valuation paradigms of each fund manager drive them. Every fund manager’s approach to risk will be clearly visible in his portfolio. Investment choices speak louder than words.
To appreciate a fund manager’s risk construct, all we need to do is to closely track their portfolio’s positioning. If their portfolio is always seeking alpha, at times, it can fail to be defensive when valuations are not in favour. This can have a weakening impact on the portfolio.
Risk must be dynamically handled in mutual fund portfolios. Often, fund managers take a defensive posture in their portfolio. They focus only on how to lose less money. This may sound strange to those accustomed to only seeing returns. But, losing less money is just as crucial to the art of making more money.
It is not as if investing can always be played like a T20 cricket game. At times, classic test batting and not losing the wicket is critical. These are times when one must stay at the crease and not choose a bad shot. Trying to do less in a portfolio will actually be a far more sensible strategy now than trying to do too much.
That is what classic investing is all about. Class is often understated, underemphasized, and inadequately acknowledged. But, we need to understand that class is permanent. Style only helps class deliver.