HF vs LO
Do you have to work for a HF if you don't want to work for an index hugging PM? Almost seems like the norm in the LO community.
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Not all LOs are index hugging. For example Dodge & Cox’s funds are very different from the index.
Also, at firms like Capital Group that use multiple managers on each fund, each individual PM does their own thing and doesn’t hug the index. Each PM will have their own investment style, preferred names, backgrounds, etc, and when you combine all these things it ends up looking pretty similar to the market.
It’s not like your job at LOs is to sit around and hug the index, your job is to generate alpha (albeit over a longer term). The combination of multiple people doing this while each controlling possibly billions of dollars is what causes these firms to end up pretty similar to the index, it’s not like they are actively trying to be close to it though.
I feel the index-hugging trend in LO can come down to 2:
1) It's just what happens on average, by definition. When everyone goes out there and tries to beat the market, it all averages out to index-hugging or at least it looks that way (on an unrelated tangent, same goes for factor investing strategies, trying to 'intelligently' capitalize on multiple factors which basically averages out to the index)
2) LO managers genuinely index-hug here and there. We're all working with constraints. All that window dressing shit and so on. Even Seth Klarman bought Alphabet and Meta
Basically, agree with the person above that no one goes out there and actively tries to index hugging or they'd be fired quickly
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