Trends Watch: High-Conviction Equities Investing

The outlook for investing in high-conviction equities appears quite promising because over the next decade, active management is expected to dominate passive management, and investing in 8 to 25 companies is deemed to outperform in a world that is highly diversified and index-based.  

In a recent podcast with Sean Emory, Founder & CIO, Avory & Co., a Miami-based investment firm that invests in high-conviction equities strategies, emphasizing secular growth and transformation, discussed the opportunities and challenges in this space. Emory emphasized that investing in fewer than eight companies may expose investors to excessive market risk, while managing more than 25 makes it difficult to consistently outperform.  

Opportunities in High-Conviction Investing  

Emory emphasized that the greatest opportunities are centered around artificial intelligence (AI) and how it applies across various industries, as various companies have started to pivot from a physical world to a digital world, leveraging tools to enhance productivity, similar to the launch of the internet that unlocked 24/7, 365 e-commerce.  

Industries embracing AI include:  

• Transportation: Autonomous trucking companies are taking carloads of goods to various places, all through automated systems 
• Automotive: Companies like Waymo, the private company that was formerly part of Google, and Tesla, are launching innovative products in the self-driving space 

These developments present compelling investment opportunities for high-conviction managers focused on secular growth and technological transformation.  

Challenges Facing High-Conviction Equity Managers  

On the other hand, Emory noted one of the most prominent challenges in the space is the lack of investor patience. High-conviction strategies often target dislocated assets with strong long-term fundamentals. However, these investments require time to mature, and success depends on active capital allocation rather than passive flows. 

Patience is Key  

The outlook for high-conviction equity investing is strong, especially for those who can identify transformative trends like AI. However, success hinges on investor patience and a commitment to active management.  

Listen to the full episode for additional insights here.