Concentrated portfolio
An active strategy that holds a small number of positions (typically 15–30 stocks) with high conviction in each. Higher idiosyncratic risk than a broad-diversified portfolio, higher tracking error against any benchmark.
A concentrated portfolio is an active investment strategy that holds a deliberately small number of positions — typically 15 to 30 individual stocks in an equity mandate, versus 60–200 in a typical broad-active portfolio. Each position is large and the manager runs higher conviction in fewer ideas.
Concentrated portfolios have higher idiosyncratic risk: one or two underperforming positions can drive a meaningful drag on total return. Tracking error against the relevant benchmark is high — single-digit to mid-teens percentage points per year, compared to 3–6% for a typical broad-active mandate. The manager's ability to identify and size high-conviction ideas is the central return driver.
In NZ retail the concentrated approach appears in several boutique NZ-equity mandates (Castle Point, Devon, Pie Funds), where the manageable size of the NZX investable universe makes 20-stock portfolios feasible without excessive position size in any single name.
Related terms
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tracking-error
Tracking error
The standard deviation of a fund's return differences against its benchmark. For an index fund, low tracking error means tight replication; for an active fund, high tracking error means more active risk relative to benchmark.
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index-vs-active
Index fund vs active fund
An index fund mechanically tracks a published market index. An active fund's manager makes discretionary buy/sell decisions trying to beat or differ from a benchmark.