(Harvest) Position sizing is one of the most valuable skills a portfolio manager can demonstrate, and many owe their success to a handful of competencies. How then do the best hedge funds significantly outperform? Expressing conviction in your best ideas through sizing bets turns a good manager into a great manager and can pay dividends.
At Novus, we help our clients discover true investment acumen through innovative and intuitive analytics –that highlighti core strengths and areas for improvement., We have found that there are five intrinsic sources of alpha, one of which is position sizing skill. As detailed in “How to Improve Position Sizing in 5 Charts”, thoughtful position sizing is critical for delivering alpha and managing risk.
In this article, we’ll analyze one manager who has demonstrated considerable position sizing skill, and through the lens of its (manager = its? “the manager’s”) publicly available portfolio, answer the following:
How can we quantify the value added by position sizing?
How can we think about how position sizing interacts with the portfolio?
How can a manager minimize the impact of weaknesses, while leveraging strengths?
