“I’m making a case against how money managers are handling customers’ money. The objective of the customer is not being met if the fund managers are diversifying their assets into hundreds of businesses. If they do this, they are typically performing close to the indexes. But that’s not the way wealth is created” — Michael Lee-Chin
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- He argues that widely diversifying clients’ funds across hundreds of companies results in portfolio performance that merely mirrors the overall market indexes.
- However, Lee-Chin states this approach does not truly meet the objective of the customer, which is presumably to generate wealth above index-level returns.
- The quote implies that merely tracking the market averages through extensive diversification is not an effective way to create meaningful wealth growth for clients over the long run.
- Lee-Chin appears to be suggesting money managers need to take on more idiosyncratic risks and concentrate holdings rather than overly diversifying, in order to outperform indexes and deliver above-average wealth creation for their investor clients.
Overall, the quote conveys Lee-Chin’s perspective that replicating broad market returns through vast diversification across many companies is not fulfilling investors’ objectives, and bolder, less diversified strategies are needed to generate true wealth rather than just matching average returns according to this view on active portfolio management.