Go Negative for Better Investment Performance

(Bloomberg Opinion) -- If you want better investment performance you must begin with companies that are “inherently better businesses,” says this week's guest on Masters in Business, Matthew Benkendorf, chief investment officer of Vontobel Asset Management Inc.’s Quality Growth fund, with $35 billion under management.

Benkendorf begins with a negative screen to identify the companies that lack the characteristics he wants in his portfolio. He jettisons companies that are only average -- or worse -- in terms of returns on invested capital and balance-sheet strength.

After the negative screen, the next step is to create what he calls a high-conviction concentrated portfolio. Avoiding excessive diversification is the key if you want to beat the market.

He looks for companies that can survive regular market and economic downturns by virtue of their more stable and predictable returns and better cash flows. Despite having concentrated portfolios, this results in a lower-risk approach, he said.

Benkendorf grew up on a farm in New Jersey, and he credits this with why he has adapted the approach of looking at stocks based on their underlying value creation. Farming is a challenging business and to stay afloat everything must be reviewed looked at on a cost-benefit basis.

His favorite books can be seen here; a transcript of our conversation is here.

You can stream/download the full conversation, including the podcast extras on Apple iTunesOvercastSpotifyGoogleBloomberg and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.

Next week, we speak with Safi Bahcall, a member of former President Barack Obama’s council of science advisers, and author of the book, "Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries."

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Barry Ritholtz is a Bloomberg Opinion columnist. He is chairman and chief investment officer of Ritholtz Wealth Management, and was previously chief market strategist at Maxim Group. He is the author of “Bailout Nation.”

©2020 Bloomberg L.P.

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