Risk is not volatility or tracking error, it is the permanent loss of capital – and most portfolio-construction machinery measures the wrong one. A market-capitalisation benchmark describes the past; using it to control risk quietly outsources position sizing to momentum. Every active portfolio holds two bets: selection, which is measured, and sizing, which is merely asserted. Decades of evidence show naive equal weighting is remarkably hard to beat, because sizing rests on return estimates too noisy to trust – the gain from over-weighting favourites is arithmetically identical to a weighting skill that is measurable yet rarely distinguishable from zero. Keeping eyes on the prize – protecting compounding – means separating selection from sizing in manager evaluation, and defaulting to equal weight unless sizing skill can be demonstrated.

Brian Arcese | 0.50 CE

When seeking exposure to the energy transition, investors typically think of wind and solar farms, and hydrogen and battery production. But the best risk/reward energy transition opportunities can be found elsewhere.

Brian Arcese