Blake Moore talks about Active Share
There are at least two things that differentiate our Funds at Touchstone Investments. Number one we hire institutional Asset managers who are experts in their respective asset class. And number two those managers employ investment strategies that are truly different from the benchmark. It’s exciting to have this concept defined in its simplest form.
Active share is a measure of how different the fund is from its benchmark. All of Touchstone’s equity funds are actively managed. They are based on fundamental investing that is benchmark aware but not benchmark constrained.
In the Touchstone Focused Fund we own approximately 25 to 35 businesses. The reason why we do that is we really are trying to invest in our best ideas.
We typically hold 30 to 40 securities in the portfolio which we think is very well diversified because we’re buying very low beta, high return on capital companies.
The active share concept was first introduced to the market in the mid 2000’s by a couple of Yale professors, effectively tried to answer the question, are all actively managed funds created equal?
We take a long term business owner’s mindset. We don’t consider us trading paper so we typically have a five year horizon.
We don’t know exactly how long our holding period’s gonna be, it’s typically on average two to three years.
We like to base our analysis on a private equity approach basing the shareholder creation factors on capital allocation. What’s on the balance sheet, what management can control today versus trying to speculate on what the future growth projections are for a company over time.
It was once believed that high conviction, highly concentrated portfolios were by definition more risky than diversified portfolios.
Our approach to risk management is integrated into our investment process. Every business we buy in the portfolio is priced for very low returns on capital. We then look at the business and if the business has a barrier to entry, that increases the probability that the market has it wrong and therefore we’re interested in that business.
We are quite enthusiast about the active share concept. It is foundational to the value proposition we offer investors, as it is one of many measures that helps characterize how we hire asset managers.