How broad expertise creates an edge in active equity investing

There is nothing obviously wrong with the traditional picture of active equity investing. More than 90 years since its publication, elements of Benjamin Graham and David Dodd's Security Analysis still sit at the centre of most fundamental equity processes: establish what a business is worth, compare that with the price on the screen and buy when the gap is wide enough.

The challenge is that this framework, applied at face value, is no longer an edge.

Fundamental analysis remains as important as ever in generating value for clients today according to Vitali Mossounov, Managing Director and Head of Public Equities at TD Asset Management. But in modern markets – where the brightest men, women and machines meet daily to battle over trillions in capital – the advantage comes down to how an investor interprets information, challenges assumptions, and acts with discipline in the face of erratic market behavior. “The competitive standard is so much higher than before,” Mossounov says. “The bar for generating returns is materially higher than it was 10 or 20 years ago.”

In previous markets, concentration of expertise was treated as a proxy for discipline, and the boutique manager was rewarded for it. Olivia Goldstein, Vice President & Director, Lead of Equity Client Portfolio Management, TD Asset Management Inc. suggests that equity markets have moved beyond rewarding managers defined by a single style or narrow research lens. “That worked in the traditional equity space,” she says, “but where that's going to lead you now is likely down a narrow road of bias that's not going to be ready for the quick rate of change.”

Goldstein sees the market moving against the single-style shop. “Now we see a lot of consolidation and a lot of larger asset managers with a breadth of capabilities taking the lead,” she said, “because you're able to leverage the difference of perspectives to make sure you get a well-rounded view of the market.”

Conviction needs a stopping rule

Active managers are paid, in part, to find opportunities in imperfect markets. The trouble is that the same conviction that produces differentiated returns can also excuse a losing position for longer than it should.

“At what point does a manager admit they are wrong on a bet and move on?” Mossounov asks. “The traditional approach of doing your homework, making a bet and waiting three, four, five years to realize outperformance is not acceptable anymore given the enormous change the world is undergoing and the high opportunity cost of sitting in the waiting room to be admitted tosee Dr. Alpha.” Mossounov believes a portfolio full of underperforming stocks that scream “value” is a hubris trap that creates an opening for managers to escape the accountability of outperformance.

The key is in the manager's toolbox and ensuring that an active manager has the right tools to find the inefficiencies to capture upside and mitigate the downside. “You want style diversification within a manager,” Goldstein says, “and you want style differentiation across your team in order to capture different opportunities.” Diverse perspectives can help investment teams challenge one another, identify when conviction has run its course sooner and exit a losing position when the evidence no longer supports the thesis (or vice versa).

Rethinking the Research Lens

“Differentiated thought is an outcome of both people and process,” says Mossounov. On the process side, TDAM's differentiated way of thinking goes right down to analyst coverage where the team looks beyond the index provider to group companies around common business models, economic drivers and value chains. For example, standard sector taxonomy places Google and Meta alongside Verizon and T-Mobile within Communication Services.

“Google and Meta are digital advertising platforms that have no overlap with traditional telecom companies like Verizon. Their economics have far more in common with other internet businesses than with wireless carriers,” Mossounov says. When Google and Meta were moved from Information Technology into Communication Services, many analyst teams simply moved coverage accordingly, reflecting the long-standing practice of letting index labels determine coverage.

TDAM reorganized its fundamental research operation into seven internal hubs and developed its own classification system around comparable business characteristics. Each hub has a handful of analysts allowing for collaboration, knowledge sharing and healthy debate to help surface the best ideas for portfolios. Securities are mapped to themes, risks and recurring types of investment bets, allowing the team to examine whether it has historically been good at the patterns it believes it recognizes.

TDAM also integrates quantitative and technical analysis into the fundamental research process rather than treat them as separate disciplines. A dedicated Empirical Research team works alongside fundamental investors, serving as a bridge between quantitative research and portfolio management, ensuring insights move efficiently from analysis to investment decisions. Specialized models can translate years of investment experience into a repeatable framework, providing an independent lens that helps test conviction, challenge consensus and identify the signals most likely to drive outcomes. Technical analysis provides an additional layer of insight, informing shorter-term positioning and risk assessment within the context of the team's broader views. These tools should strengthen—not replace—investment judgement.

As global markets have become more complex, TDAM's empirical framework has evolved alongside them. An effective model assesses companies through multiple lenses, including sector, geography, theme and investment style. Combining established quantitative methods with newer tools such as artificial intelligence while staying grounded in the firm's fundamental investment principles can add context and reduce reliance on any single model. Alignment across independent signals can strengthen conviction, while divergence can prompt an early review of the investment thesis.

Know where the edge actually is

The harder part of active management is deciding what deserves attention in the first place. TDAM asks analysts to begin with primary sources: what the company is saying, what appears in its published reports and what conclusion the analyst reaches before absorbing the market’s interpretation of the same information.

“You cannot simply bring something that everyone is talking about, because we believe if you bring something that everyone’s talking about, it’s already in the price. We need a variant perception to have a shot at asymmetric risk:reward” Mossounov says.

Goldstein says the combination of fundamental, quantitative and technical work is meant to make the team less dependent on whichever signal happens to be loudest.

“When you have a team with that level of broad expertise that is trained and expected to go deeper than what is just hitting the headlines, challenge the status quo and challenge each other,” she says, “then the noise from the signals becomes clear.”

That discipline of evidence over sentiment applies to how the team evaluates companies, but also their own process and track record. With companies mapped out to relevant market themes, risks and key investment bets, Mossounov can hold his team accountable for knowing what calls actually added value beyond the traditional allocation and selection-based performance attribution. The team can drill down into exactly what themes and bets drove performance. Experience only counts for something if there's a ledger showing where it has paid off and where it hasn't.  “It's the entire ecosystem that is now contributing to actual performance outcomes,” Goldstein says. “It's the leadership, the breadth and the robustness of the equity analyst team and how they collaborate with the portfolio managers.”

In a market where much of the obvious information is already reflected in prices, the distinction increasingly comes down to what a team can find beyond it.

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