ATLAS believes that portfolios containing relatively few positions can generate superior alpha without significant exposure to risk, providing that common factor exposures and idiosyncratic risk is deeply analysed and managed. Central to our approach is the definition of risk as related to permanent impairment of returns over the long run. We do not manage short-term volatility or tracking error. ATLAS aims to give investors the best long-term returns possible, while minimizing the potential for permanent loss from either common factor exposures or stock-specific impacts.
This document sets out some of the analysis and research that supports our approach to risk control and provides some context to the alternative approaches to portfolio diversification and optimal sizing. We commence by examining the relation between portfolio risk and the number of positions from a more traditional perspective. This provides context and establishes that 5-15 stocks should suffice to limit idiosyncratic risk to acceptable levels. We then set out the ATLAS approach to risk management.