Dare to Be Different – Q3 2025 Commentary

As portfolio managers, we receive a constant flow of economic and investment market insights and updates. This one seemed timely and appropriate to share given our alignment of concern about the concentration of the largest companies in the US and World market indexes. 

EdgePoint Wealth Management provides diversified security selection using “active management”, focusing on differentiated ideas and mid- to large-sized companies with greater growth potential, while cautioning against herd mentality and overconcentration in mega-cap tech stocks. Their disciplined approach has delivered consistent long-term results through market cycles. Please enjoy a brief read through the analysis and illustrations that lead to our shared viewpoint with EdgePoint, and an insight on why we recommend them.

Click here to read the EdgePoint Commentary

Here is a summary of the commentary:

1. Historical Lessons from Market Innovation

• The commentary opens with insights from Engines that Move Markets, highlighting how technological revolutions (like automobiles and electric vehicles) create cycles of euphoria, competition, oversupply, and eventual consolidation. It’s often easier to spot likely losers than winners during these transitions.

2. Parallels to Today’s Market

• Electric vehicles (EVs) and artificial intelligence (AI) are today’s transformative technologies. The commentary notes that EVs aren’t new, and their current challenges mirror those from a century ago.
• AI enthusiasm has driven a bubble in large U.S. tech stocks (“Mag 6”: Google, Amazon, Apple, Meta, Microsoft, NVIDIA), with many global funds heavily concentrated in these names.

3. Herd Mentality & Active Management

• Many funds, despite different labels (value, growth, dividend, core), hold the same top stocks, closely mirroring the MSCI World Index.
• EdgePoint Global Portfolio distinguishes itself by not holding any of the index’s top 7 stocks, emphasizing true active management.

4. Measuring True Active Management

• Active Share: Measures how different a fund is from its benchmark. EdgePoint’s active share is much higher than peers, indicating genuine active management.
  
  

5. Portfolio Construction & Market Cap

• Passive investing offers diversification, but most index weight is in the largest companies. EdgePoint’s average holding is much smaller (US$73B vs. peers’ US$867B), allowing more room for growth.
• 60% of EdgePoint’s investments are in companies with market caps below US$25B, targeting overlooked opportunities.
  
  

6. Lessons from Mountain Climbing

• The analogy: Reaching the summit (becoming a Top 10 company) is rewarding, but performance often lags afterward. As companies grow, it becomes harder to outperform.
• Big tech’s capital-light model is shifting; now, massive investments in AI infrastructure are required, changing the risk/reward profile.
  

7. EdgePoint’s Investment Approach

• EdgePoint invests with conviction, concentrating on the best ideas. Over the past five years, 28% of its holdings contributed more than 1% to performance, compared to just 0.5% for the MSCI World Index.