You work as an analyst at a discretionary equity hedge fund. You have the investment thesis that it pays to buy the "best in breed", that is, stocks that are the industry leaders. You find the companies that are currently the largest in each industry and track their performance the last 5 years. This portfolio significantly outperforms the market over the time period. Are there any issues with this analysis? Should the hedge fund buy this portfolio and, if so, what are the risks?

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While the investment thesis of buying the best in breed stocks or industry leaders may seem appealing and has shown outperformance in the past there a... View the full answer