For many clients, diversification means a spread between product suppliers, advisers and asset managers or funds.
For many clients, diversification means a spread between product suppliers, advisers and asset managers or funds.
There are pitfalls in each.
Because product suppliers generally have similar products, as long as you ensure it is not part of a provider’s balance sheet and you select the best product provider out there for your needs, you don’t need multiple providers. To use diverse advisers may lead to underperformance, higher costs and not reaching your financial goals. Diversifying between asset managers seems sound, but have you looked deeply enough into their holdings? Often there is a big overlap so you may end up with duplication.
To us, diversification means not having to endure a long-term trendline reversal as was the case with Japan’s stock market since the 1990s. You should never rely on one geography or asset class to deliver returns. Rather, optimize the returns available in the various asset classes: Research has shown that asset allocation is a more significant factor in determining returns than stock selection.
In uncertain times, maximum diversification is more important than ever to achieve long term outperformance.