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Thursday, March 22, 2018

What Do Due Diligence Teams Think of Focused Strategies?

Reported by Neil Anderson, Managing Editor

The future may be brightening for fundsters offering focused strategies. New research suggests that broker-dealer home office teams and other due diligence specialists supporting financial advisors are increasingly interested in focused U.S. equity strategies.

Yesterday New York City-based Alger (which offers several focused strategies) and Stamford, Connecticut-based Greenwich Associates unveiled Greenwich's The Power of Focus: Looking for Alpha in a Sea of Beta report, based on research done with institutional investors and consultants and due diligence experts at firms like B-Ds. Greenwich divides the group broadly between institutional investors and intermediaries (really the due diligence experts supporting FAs).

The report draws on responses last fall from 91 professional buyers, 25 percent of whom were on the intermediary due diligence side.

30 percent of those due diligence experts supporting FAs say they've increased their allocation to focused U.S. equity strategies over the last year and a half. And 62 percent expect interest in those focused strategies to rise over the next two years. The researchers also talked to respondents about what "diversified" means, how they're using focused strategies (as core holdings, satellite options, or both), whether or not focused strategies are riskier, and more.

"These intermediaries are in fact really similar to institutional buyers," Davis Walmsley, managing director of investment management at Greenwich and co-author of the report, tells MFWire.

"Five or six years down the road, I think we'll look back at this period as the time when focused strategies really took off in the marketplace," Jim Tambone, executive vice president and chief distribution officer at Alger, tells MFWire. "One of the best ways you can create this differentiation and conviction is by having more focused portfolios."

Alger has long had a relationship with Greenwich, Tambone says, yet this is the first time the fund firm teamed up with the research firm to do a study. And he expects to do research along these lines, perhaps focusing on other asset classes, investors outside the U.S., and of course FAs themselves (not just their due diligence allies).

"There's no doubt we want to continue some research in the future on this. This isn't a one and done," Tambone says. "Data has a way of leading you to want more data. I think that's the case here." 

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