No Fear of Commitment

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Co-authored with Laurence B. Siegel, this article makes the case for high-conviction active management as a rational and underutilized complement to indexation in institutional portfolios. The authors argue that while breadth — the number of independent forecasts a manager makes — is the standard path to a high information ratio, high conviction represents an equally valid alternative route available to managers willing to build concentrated portfolios based on deep fundamental research.

Scanlan and Siegel outline a framework for identifying managers with genuine high-conviction skill: the ability to generate a small number of securities forecasts with sufficiently high accuracy to justify concentrated positions. They discuss how institutional investors can incorporate such managers into broader diversified portfolios, and why the same logic applies to both long-only and long-short strategies — with appropriate adjustments for the additional risk disciplines that short exposure requires.