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What does "conviction sector" mean in this sentence?

Those are our three higher conviction sector overweights that I do think have more room to run, especially financials.

Source: http://uk.businessinsider.com/interview-with-jp-morgans-head-of-us-equities-dubravko-lakos-bujas-2017-2

This is the full quote for context:

Wadhwa: Turning back to equities, what sectors do you recommend? What sectors should we stay out of?

Lakos-Bujas: Within equities, we have been early on the reflation trade. We went overweight energy in December 2015. We went overweight materials in January 2016 and we also entered the financials trade in late 2015 which may have been a little bit too early, but so far it’s been paying off. Those are our three higher conviction sector overweights that I do think have more room to run, especially financials. The fourth one I would add into that bucket is healthcare. I like healthcare. I do see healthcare as a sector that will likely continue to print superior growth. Valuations have come down quite a lot. Valuation wise it’s attractive. Headline risk isn’t going to go away necessarily given the new administration, but I think a lot of the negativity around headline risk is already priced in.

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    High conviction investors is a term localized to the UK. Feel free to remove the tag if you disagree. – Nathan L Feb 13 '17 at 19:03
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    In the US, this approach is taken by "hedge funds". – Nathan L Feb 13 '17 at 19:04
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I don't think you're parsing the sentence the way it was meant. "Conviction sector" wasn't meant as a single phrase. The way I read it, "higher conviction" modifies "sector overweight", and I think "conviction" in this context is being used in the sense of "confidence".

It's also confusing because "overweight", which is usually an adjective, is being used as a noun, meaning "the act of assigning a disproportionately high weight to (a particular sector)". In this case, it means they invested more heavily in those sectors. .

I would rephrase the sentence as:

We had higher confidence in our decision to invest more heavily in those three sectors. We think they have more room to run, especially financials.

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High conviction investors are those who believe strongly that they know better than the other market participants and invest boldly on those convictions.

This company is mentioning three investment areas that they have made where they are betting against the conventional wisdom and seeking higher returns from market sectors that they believe will over-perform in the near future.

  • I think you're right about the usual meaning (though I think it's a bit more nuanced than that), but I think Nate E is right in this particular instance. – Joe Feb 13 '17 at 20:30

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