Q: Hi, is it ever wrong to own a company and its proxy? For example, KXS and DSG. Is it a zero sum game where owning both will cancel out gains? Or can they grow together? Is it advised to just pick the one you have the most conviction in, or perhaps a half position for both (in general)?
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5i Research Answer:
Two positions will of course provide diversity, but they can certainly both move up, and both will not necessarily cancel each other out. The main risk is a sector-wide decline, where both could stay weak for a while. But for risk management owning both can certainly work. Today KXS is outperforming and we are comfortable with it. But DSG has a good history and we think it can also be held. Weightings need to be personal but we would be OK with a larger position in KXS vs DSG right now.