The Steadyhand investment philosophy is based on four key principles:
Indexers seek to match the market’s returns by replicating its composition. Our goal is to beat the market over the long run. The best way of doing this is to build funds that look nothing like it. Call us undexers. Our managers run non-benchmark oriented portfolios comprised of the stocks they like best, regardless of their status in the index.
By focusing on a limited number of stocks (20-30), portfolio managers have a greater understanding of the businesses they invest in and carry a higher level of conviction in their best ideas. A fund with a vast number of holdings stands little chance of outperforming the market, as it runs the risk of simply mimicking it. Perhaps Warren Buffett said it best, "Wide diversification is only required when investors do not understand what they are doing." For more on the topic, see our article Concentrate Dammit!
Investment constraints dictate where a manager can and can’t invest. In theory, they are designed to help reduce risk by keeping a fund within a certain “box” and preventing it from straying too far from an index or benchmark. In reality, constraints tie a manager's hands by forcing them to invest a fund's assets a certain way. We would prefer our managers seek opportunity wherever it can be found, without looking over their shoulder at the index.
Frequent trading is costly in many ways. It signifies a lack of confidence, decisiveness and tax awareness. Our managers invest with conviction and typically hold the businesses in which they invest for several years.