The basics

Why nobody likes diversification

I work as an investment manager, and a few years ago I had a boss called James (not his real name). His job was mainly portfolio construction, but he occasionally took client meetings and provided portfolio updates to some high net-worth individuals alongside the relationship managers. He had a vast repertoire of favourite sayings that …

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International diversification: The evidence – Part 3

If you cast your mind back to this post (Against International Diversification), we saw some legitimate, evidence-based reasons which might support not diversifying internationally. Specifically, we saw that cross-country correlations are high, and that correlations are likely to converge to 1 during a crash. But are these arguments good enough to justify heavily overweighting our …

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International diversification: The evidence – Part 2

In the previous post we saw that international diversification: Helps ensure one country’s drawdowns don’t affect your overall portfolio’s returns too much, Reduces risk through lower volatility, drawdowns, and vulnerability to Black Swans, Increases returns through minimising the volatility tax and owning the few countries which are driving returns. But that’s not all… Diversification reduces …

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International diversification: The evidence – Part 1

We owe a lot to the ancient Greeks. They laid the groundwork for a huge swathe of today’s society, including democratic government, philosophy, theatre, architecture, mathematics, jury-based trials, medicine, and the Olympics. But there’s one aspect of Greek culture which hasn’t managed to endure the test of time – its stock market. The Greek stock …

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Against international diversification

Given that I’m writing this the day after the UK left the European Union, a post on the perils of investing overseas seems appropriate. What better way to stick it to those straight-banana loving mainlanders than to take all our investments and move them back to our glorious island? Thankfully I won’t be opining on …

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How diversified is the FTSE 100?

I recently attended a small presentation given by the CIO of one of Oxbridge’s college endowments. He was a typical economist – articulate and confident in his views, with some big-brand names on his CV and a reassuringly expensive suit (he must know what he’s talking about). In typical economist style, he also threw out …

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