Jan 2020

Perfect 2020 Foresight

7 Jan 2020
Perfect 2020 Foresight

Since it is the year “2020”, I thought it would be fun to look at what investment returns would have been generated by perfectly prescient stock picking over the past five years.  What if you had perfect foresight on January 1st each year and created a portfolio of the top stocks for that year?

We know the U.S. equity recovery has been strong and over the past five years the S&P 500 has generated an average annual IRR of 12% on a capital weighted basis, solidly above the long run historical average and helpful in meeting most investors’ goals.

Over the same period, approximately ½ of the stocks in the S&P beat the index return and ½ lagged it on a given year.  The number of individual stocks beating the index return ranged from 234 to 273 while the detractors have ranged from 227 to 266 (sometimes the composite stocks change).

But with perfect foresight…

  • If you bought the top 100 performing stocks (on an equal weighted basis for the upcoming year) on Jan 1st each year and then rebalanced each Jan 1st, you would have beaten the S&P 500 total return by approximately 35% per annum from 2015 through 2019.

  • If you decided to concentrate and picked the top 10 performing stocks each year on Jan 1st, and again rebalanced each year to reflect your foresight, you would have generated a multiple of invested capital of 28.1x over the five-year period – almost 16x better than the index!

  • If instead you somehow picked the 100 worst performing stocks each year, and rebalanced annually to magnify your pain, you would have ended the five years with only 34% of your initial capital.

  • If you were simply dreadful in an otherwise healthy market, and bought the 10 worst stocks each year, again rebalancing annually, you would have ended up with only 6% of your initial capital.

Table for 2020


*The data in this table was generated from the S&P website at www.spindices.com and Refinitiv, www.refinitiv.com. The calculations from this data were performed internally.  Perkins deems these sources to be reliable, but they are not in any way guaranteed and should not be considered as any form of an investment recommendation.

Best wishes to all of you seeking alpha in 2020.  May the foresight be with you!

Douglas Newsome, CFA
Managing Director, Director of Research
Perkins Fund Marketing


May 2018
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Ten Common Goals of Active Investment Managers and their Investors

9 May 2018
If one were to believe everything they read, one might believe investment managers and their investor clients come from two different planets.  While there are real differences -  over the long haul - both are investors with similar goals.

  1. Produce Attractive Absolute Returns.  Active managers are paid to compound returns – not to replicate an index at the lowest cost possible.  All investors move on to the next opportunity if the manager fails.

  2. Generate Alpha.  Active managers and their investors are competitive and demanding.  No one wants to be in business with a firm that has no reasonable edge relative to a very low cost index fund.

  3. Build a Terrific Team with Low Turnover.  While managers want to have the best team they can, stuff happens.  A manager may have to replace someone well-liked by their investor base.  This can be particularly challenging if the manager believes it is a plus when this well-liked professional is gone.  On the other side, when investors themselves have high turnover, the manager has to essentially sell itself repeatedly to that investor.

  4. Create a Stable and Happy Investor-base.  This is an interesting point many managers do not fully comprehend.  Ideally, most investors prefer their managers simply perform and remain invested.  Investors will require additional support from their managers during poor performance to keep their own clients or board members calm.

  5. Maintain Effective Two-Way Communication.  The best managers keep regular and timely contact in good times and bad.  The best Investors communicate their concerns as well as internal issues they face to their managers.

  6. Generate No Unwanted Publicity.  The investment world is very different than entertainment in that the adage “all publicity is good publicity” in no way pertains.  Many, many managers and allocators have found their businesses and careers derailed due to a relatively small amount of negative publicity.  If it does, address it.

  7. Eliminate Catastrophic Risk Management Failures.  Successful investors know every single strategy and manager suffers periods of underperformance.  These are explainable.  Sustaining losses from risks you have never mentioned and/or repeatedly dismissed, will shrink your investor base.

  8. Lower Correlation to Related Long-Only Indices.  Over time, active managers must demonstrate they are doing something with the fees they receive.

  9. Create Manageable Growth in Assets. Investors and their boards gain comfort when others join them.  What most investors do not think much about is managers like to see their investors’ businesses grow as well.

  10. Early Commitments are More Significant.  Commitments to emerging managers can be the start of a career changing relationship on both sides.  Committing to a multi-billionaire, not so much.What does this mean?  When you meet up with a potential investor (and vice versa), remember that you are in this together.

    Douglas Newsome, CFA
    Managing Director, Director of Research
    Perkins Fund Marketing

Mar 2018
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Ten Things that Managers Should Remember When Meeting with a Potential Investor

15 Mar 2018

Every manager that we work with at Perkins Fund Marketing asks us hundreds of questions during a marketing assignment seeking advice, tips, best practices, etc. The following are just a few helpful tips for managers to consider during fundraising.

1. You are Asking the Investor for their Money so… Be Prepared! (a) There is no excuse to not being able to answer standard alternative investment questions. (b) Know as much as possible about the investor, beforehand. (c) Be conscious of how much political capital the investor may need to use to invest in your fund.

2. Investors own the Bat and the Ball. Investors expect transparency and some give it – but some may not. A potential Investor may not tell you that: (a) they know your major competitor (b) they just met with someone who convincingly pitched them the exact opposite idea (c) they do not have any fresh capital. Sadly, some investors will simply waste your time for a myriad of reasons.

3. Ask “How Much Time Do We Have and what specific ideas/topics/points do you want to make sure we cover in this time?” If you are not considerate and aware, this will be your last meeting.

4. Make your Meetings Interesting. Many Investors take hundreds of meetings each year. Most of their meetings are boring and go nowhere. Make their day.

5. Keep It Simple. Stupid. If the investor cannot easily repeat your pitch to his/her boss and colleagues, game over.

6. Answer the Question. When a manager takes a long time to answer a question, or does not answer it directly, the investor thinks the manager is lying or unprepared or both. This is unforgiveable.

7. Let. the. Investor. Speak. If you are doing all the talking, the meeting is bad. People (including investors) love to hear themselves speak. And hey, you may just learn something.

8. Everyone has a “Good First Meeting”. Seriously. Investors are generally polite – even when they think the manager is an idiot. The goal is to get to the next step. The Investor may finish the meeting by saying they enjoyed the presentation, the strategy is interesting, etc., yet never returns your call again. Sorry but this happens.

9. End the Meeting with Next Steps. You should wrap up the meeting in a way that the investor can repeat your story. Importantly, however, you should attempt to know what you and they will do next.

10. If the Investor likes your pitch, it is just the Beginning. Institutional investors will need more information and materials than are needed to understand the strategy and how it fits, etc., but as the carpenter says, “measure twice, cut once”.

Do these well and you may be off to the start of a long- term relationship.

J. Douglas Newsome, CFA
Managing Director, Director of Research
Perkins Fund Marketing LLC