highconviction

Highconviction is a term used in investment management to describe a strategy in which a portfolio concentrates capital in a relatively small number of investments in which the manager has high confidence. The goal is to achieve outsized returns by leveraging deep research and conviction on a select set of ideas, rather than spreading risk broadly.

Implementation tends to involve a tightly focused portfolio, often with roughly 10 to 30 holdings, with the majority of capital assigned to the top ideas. Managers may use fundamental analysis, quantitative screens, and scenario modeling to identify these ideas. Positions are typically actively managed, with disciplined rebalancing and risk controls to limit downside if conviction proves wrong.

In practice, high-conviction approaches are used by various asset managers, including mutual funds, hedge funds, and private wealth teams. Some fund families publish annual or quarterly lists of their highest-conviction ideas for clients, sometimes labeled as "fundamental ideas" or "top stock picks." The term is not standardized, and the exact definition of "high conviction" can vary by firm.

Risks include concentration risk, volatility, and the potential for underperformance during crowded markets or when the manager's thesis proves incorrect. Critics argue that high-conviction portfolios can underperform in the short term and rely on the manager's skill. Proponents say the approach can outperform in the long run when the research is robust and the positions are well managed.