High-conviction investing: When managers back their best ideas

When it comes to investing, some fund managers prefer to cast a wide net – owning dozens or even hundreds of companies to spread risk. Others, however, choose a different path.

These fund managers back a smaller number of companies they believe have the strongest potential, investing with high conviction. This approach may sound bold, but when carefully managed, it can offer powerful benefits for long-term investors.

What is high-conviction investing?

High-conviction investing is a strategy where fund managers focus on a relatively small number of stocks, known as their best ideas. Instead of holding a long list of companies just to diversify, concentrate on the businesses they believe offer the greatest potential for growth.

A high-conviction strategy might see a manager include 20–40 companies rather than 100 or more. Each holding is there because the fund manager has done extensive research, developed strong conviction, and is willing to stand behind the decision.

In the context of a multi-manager fund, this approach can be especially effective. Each manager is free to focus on their best opportunities, while the overall portfolio still benefits from diversification across different management styles, sectors, and regions.

Why less can be more

There are several reasons why a more focused portfolio can work to investors’ advantage:

• Deeper research, stronger insights. With fewer companies to analyse, managers can spend more time understanding each business in depth, from its balance sheet to its competitive edge. This level of scrutiny allows them to build stronger conviction in their investment choices.
• Potential for higher returns. A concentrated portfolio means each company has a greater impact. If the chosen businesses perform well, the gains can be more meaningful than in a highly diversified portfolio where strong performers may be diluted by weaker ones.
• No ‘passenger stocks.’ In some large funds, fund managers may hold certain companies just to reduce career risk or match the benchmark. In a high-conviction strategy, every stock has to earn its place – no free rides.

Of course, the trade-off is that concentration can increase risk. If one or two holdings perform poorly, they can drag down the portfolio more noticeably. That’s why high-conviction investing is often most effective within a broader, multi-manager approach, where diversification is maintained without diluting the strength of individual managers’ ideas.

Balancing focus with diversification

It’s important to remember that high conviction doesn’t mean all your eggs are in one basket. The goal isn’t reckless concentration, but disciplined focus.

By selecting a smaller number of carefully researched companies, fund managers aim to capitalise on their best ideas while still maintaining balance across industries, regions, and themes.

When combined with other managers taking the same approach, the result is a diversified portfolio of high-conviction strategies. Each manager backs their top choices, but collectively they offer investors resilience and breadth.

The bottom line

High-conviction investing is built on a simple principle: quality over quantity. By concentrating on their best ideas, managers can deliver deeper insights, greater accountability, and potentially stronger returns.

For investors, this approach offers a way to harness expertise while still enjoying the balance and diversification provided by a multi-manager structure. It’s an approach that champions conviction, discipline, and long-term thinking.

Issued by Towers Watson Investment Management Limited (TWIM), registered office Watson House, London Road, Reigate, Surrey RH2 9PQ. TWIM is authorised and regulated by the Financial Conduct Authority, firm reference number 446740. TWIM is the Alternative Investment Fund Manager (AIFM) for Alliance Witan PLC. TWIM is part of Willis Towers Watson.
Alliance Witan PLC is listed on the London Stock Exchange and is registered in Scotland No SC1731. Registered office, River Court, 5 West Victoria Dock Road, Dundee DD1 3JT. Alliance Witan PLC gives no financial or investment advice. © Copyright Alliance Witan PLC. Tel: 01382 938320.
 
This information is for informational purposes only and should not be considered investment advice. The views expressed are the opinion of TWIM and are not intended as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell any securities. The views expressed were current as of end July 2025 and are subject to change. Past performance is not indicative of future results. A company’s fundamentals or earnings growth is no guarantee that its share price will increase. You should not assume that any investment is or will be profitable. Information contained herein has been obtained from sources believed to be reliable but not guaranteed.