A recent study by Markov Processes International, Inc. (MPI) has raised questions about the Tampa Police and Fire Pension Fund's stock-picking strategy, suggesting that a diversified investment approach could yield similar returns with lower risk. The $3.2 billion fund, managed by Bowen, Hanes & Co., has consistently outperformed or matched its benchmarks over the past decade. However, MPI's analysis, utilizing its Stylus Pro software, indicates that these results could be replicated through a portfolio of market indices, adhering to Modern Portfolio Theory's principles of diversification.
Michael Markov, MPI's Founder and CEO, highlighted the study's implications for institutional money managers, pointing out that diversification can achieve comparable performance to stock-picking without the higher risk. The study found that while the fund's strategy involved moderately higher risk, its efficiency, measured by the Sharpe ratio, was superior to its benchmark. This challenges the conventional wisdom that active stock-picking is essential for large portfolios, suggesting instead that thematic exposures to sectors or indices can provide similar benefits with reduced volatility. The full report is available here.
