The Swiss Privat Bank’s Swiss small and mid cap fund regularly outperforms the SPI Extra. However, due to its benchmark proximity, which is called for by many institutional investors, it is difficult for the fund to stand out against some of its more actively managed peers over short periods of time. In this work, a high conviction investment strategy is developed and backtested against an established peer group with data ranging from 2014 to 2023. Additionally, it outlines the requirements for a successful launch of the high conviction fund.

The high conviction investment strategy is based on the portfolio holdings from the Private Bank’s Swiss small and mid cap fund. To increase its conviction, the multiplier and threshold determine the weight of a stock in the high conviction fund. The multiplier increases the relative weight of a stock in the portfolio, whereas the threshold excludes stocks whose portfolio weights do not differ strongly from the SPI Extra. Three strategies are developed, and the most compelling strategy is compared to a group of five high conviction funds, which is established by analyzing their track error.

Over the 10-year period covered, the developed high conviction portfolio achieved a significant outperformance compared to the SPI Extra and the existing small and mid cap fund. Furthermore, examining two shorter timeframes within the 10-year period offers insights into how the high conviction portfolio would have performed in particularly volatile market environments. Across all three time frames, the high conviction portfolio outperformed the SPI Extra and the existing small and mid cap fund without significantly increasing volatility. Further, it managed to outperform two out of five peer group funds and outperformed the entire peer group in terms of excess risk-adjusted return. Additionally, the success factors that facilitate the implementation of the high conviction strategy were identified. In analyzing these factors, it was determined that the high conviction fund could be applied in the Private Bank's discretionary mandates, thereby enhancing its existing product offering and collecting a significant amount of seed capital for the launch of the fund. Most importantly, the proposed solution could enhance the Private Bank's visibility in the market as an asset manager.