Prospector Market Insights

Benchmark Agnostic in an Era of Index Mania

Written by Prospector Partners | Jan 23, 2020 2:17:12 PM

It’s not that agnostics don’t care, they’re just indifferent.  They neither place faith in nor disbelief with the subject at hand. That, in a nutshell, is our view of the makeup of the S&P 500, one of the benchmarks to which we compare the performance of our strategies.  Specifically, it is the sector weightings within the S&P 500 to which we are indifferent.

“We’re bottom up investors who build our portfolios one stock at a time,” said Prospector Portfolio Manager Kevin O’Brien, CFA. “We’re aware of what the benchmark weights are, but we are not a slave to them… We want to pick the best stocks.”

This bottom-up portfolio construction can lead to significant sector under and overweights versus the S&P 500. One sector we tend to be overweight is financials, a natural area of strength where we have consistently added alpha over time.  “Over twenty-plus years we have proven we can manage the downside, even when overweight financials,” said Prospector Founder and Portfolio Manager John Gillespie.  “We’ve done this by focusing on low leverage, well capitalized companies.”

We tend to also be overweight defensive sectors such as consumer staples and healthcare. On the flip side, technology, consumer discretionary and energy tend, more often than not, to be perpetual underweights in the portfolios