An investment strategy where volatility goes up but risk does not

Value investing has undergone huge change since the global financial crisis with the conversation thankfully moving away from cost in isolation to what represents good value – value for money, in other words.

If you add a high degree of concentration into a global equity fund’s design, then ‘value’ often turns into ‘volatile’. But does higher volatility make it more or less risky for investors?

An easy challenge to levy at a high conviction, highly concentrated fund is that relying on just a handful of stocks increases a fund’s levels of risk.

Win Murray, a portfolio manager at Harris Associates, an affiliate of Natixis Global Asset Management, argues strongly that a global equity fund of 20 stocks may be more volatile but is not more risky as a result.

He argues that buying stocks that are discounted to what he feels they are worth is providing good value; paying more for a stock than he feels it is worth is increasing the risk.

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