WHAT SINGLE MALT TEACHES ABOUT ACTIVE INVESTING

Like whisky- making, you can create alpha via selective stock picking beyond benchmarks

- Priya Sunder is director and co-founder, PeakAlpha Investments.

Glenkinchie, a single malt distillery near Edinburgh, produces a signature Lowland-style whisky with floral, citrus and nutty notes-a key ingredient in Johnnie Walker blends. On a recent visit, I saw how its distinct character depends on the right balance of yeast, malt, water, barrel wood, drying techniques and copper stills-all refined over years of ageing.

Distillers said maintaining consistency is a constant challenge, as each batch varies with weather, humidity and the nature of raw materials. No two oak casks are alike, so they hedge risk by ageing whisky under varying conditions of wood, heat and climate.

A toast to alpha

In this sense, managing a portfolio of stocks that strives to beat its benchmark over the long term isn't too different from producing consistent, high-quality batches of whisky at Glenkinchie. Actively managed stock portfolios can outperform benchmarks and generate significant alpha over several years, but they can also underperform the index, sometimes by a large margin.