MiB: How to Build “Concentrated, High Conviction” Portfolios

If you want better portfolios you must begin with companies that are “inherently better businesses.” So says Matthew Benkendorf, CIO of Vontobel’s Quality Growth boutique, managing $35 billion. Parent company Vontobel manages $279 billion and has 2,000 employees.

Benkendorf  begins with a negative screen to identify the companies that lack the characteristics he wants in his portfolio. He jettisons companies that are only average (or worse) in terms or “Returns on invested capital” and “balance sheet strength.”

After the negative screen, the next step is to create a “High Conviction” concentrated portfolio. Avoiding “over-diversification” is key if you want to beat the market. (e.g., don’t be a “closet indexer”).

He looks for companies that can survive regular market and economic downturns by virtue of their “more stable and predictable returns” and “better cash flows.” Despite running having concentrated portfolios, this results in a lower risk approach.

Growing up on a farm in New Jersey, is why he has adapted the approach of looking at stocks based on their underlying value creation. (Farming is a very challenging business, and to stay afloat, everything must be reviewed looked at on a cost/benefit basis).

His favorite books can be seen here; A transcript of our conversation is available here.

You can stream/download the full conversation, including the podcast extras on Apple iTunesOvercastSpotifyGoogleBloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.

Next week, we speak with Safa Bahcall, member of President Obama’s council of science advisors, and author of the book, “Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries.

 

 

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