Currently it seems worthwhile using a growth manager to invest in US equities – perhaps with a bias away from the largest index stocks, but to use a deep value fund manager to invest in Japan and, perhaps, the UK. When stock markets trade on different valuations, that may suit the techniques of different types of active manager.
Unfortunately, the geographic diversification most often recommended in equities seems to be based on top-down economics and simplistic valuation. This tends to lead to a recommendation that portfolios are underweight US equities, overweight UK and emerging market equities. This approach has worked very poorly for many years.
Finally, how many shares or funds do you need to be well diversified? If a diversified equity portfolio holds around 60 stocks and as most mutual funds hold at least 40 holdings each, there seems to be no need to hold more than one core global equity fund.
Indeed, holding two or three different generalist funds makes it likely that you end up owning a bit of everything (so you may as well hold the index and avoid fees) or that you double up in holdings in the fashionable stocks and so haven’t reduced risk.
Finally, however you choose to diversify, each extra investment has got to stand on its own merits as an investment idea and to add something different from your existing holdings.
I’m afraid the bright new, shiny idea is often not the one that works best and the long term holding that you seldom pay much attention turns out to be the star performer in your portfolio in the year ahead.
Simon Edelsten ran global equity portfolios for three decades
