Pedigree doesn’t matter in every business, maybe not in most, but when intellectual capital is both valuable and closely guarded it can leave a clear impression on successive generations. Novus Research analysts Stan Altshuller, Joe Peta and Christopher Jordan noticed that football coaches are often grouped into ‘coaching trees’ based on who they started under, and that coaching trees had meaningful differences from each other.
Looking at Tiger Management’s investment tree
With this in mind, they decided to take a look at the alumni from Julian Robertson’s Tiger Management, his investment tree, to form the Novus Tiger Portfolio (NTP). They found that, just like the members of Bill Walsh’s coaching tree are famous for putting the West Coast Offense to good use, the NTP has strong stock picking skills based on bottom up analysis, with a clear preference for tech and consumer discretionary stocks.
“Our analysis shows that in virtually every sector, NTP generated excess returns, or alpha, overwhelmingly with stock selection skill. Further, alpha generated from sector selection matched their largest exposures, demonstrating awareness of where their investing edge lies,” they write.
As a group, NTP has steadily generated alpha over equity markets, and though they had a harsher downturn than most of the market during the financial crisis, they have also recovered much more quickly.
NTP participation rate predicts winners
But alpha generation only proves that the people who came out of Tiger Management are talented managers in their own right, which shouldn’t surprise anyone. The Novus study also found that there is a lot of agreement between members of the NTP and that contrarian positions within the group don’t pay off.
Between 2006 and today the overlap between NTP portfolios has increased (with plenty of noise of course). It may be tempting to argue that if different managers in the NTP are reaching such similar conclusions they may be victims of groupthink, but it might be more accurate to say that they reach the same conclusion because the bottom-up approach they stand by isn’t as prone to subjectivity as some other investment styles. Whatever the reason, NTP’s biggest winners also have the largest manager participation rate, with a fairly clear trend line when you look at the last seven years.
For now the Tiger cubs don’t seem to be crowding each other out of investments despite the high degree of consensus, but with $250 billion assets under management between them (including Tiger ‘grand cubs’ as well) that may not always be true.
“He may not have meant to create such a prodigious family tree, but Julian Robertson’s standing as the patriarch of the most successful family of investors appears secure,” write Altshuller, Peta, and Jordan.