The analysts subsequently determine that a top-down, systemic approach of reconstituting the portfolio is preferable to their current bottom-up, discretionary approach.
Compare the stock selection process that focuses on a systemic, top-down approach versus their current approach.
The systemic, top-down approach emphasizes macro factors and factor timing and typically results in a diversified portfolio. A discretionary, bottom-up approach emphasizes firm-specific characteristics and may incorporate factor timing. The resulting portfolio may be concentrated or diversified depending on the manager’s style and strategy.
Pardon me, but I thought discretionary bottom-up leads to concentrated portfolios, reflecting the in-depth expertise/insights of a manager related to certain stock/companies? Yes, OK, they could also be diversified, BUT the concentration is a much higher probability?