What is Diversification?
Diversification is an investment technique which involves spreading an investment portfolio across various categories including region, sector, and asset type. This is done to maximise the returns of various markets while managing the risk of the portfolio as a whole
How does Reeves diversify its portfolios?
Diversification across various regions allows us to reduce our portfolios exposure to region specific risks: for example, Brexit. This allows us to benefit from the growth potential of different regions, without fully exposing ourselves to the market risks that come with them. Alongside managing risk, looking at various regions gives us different opportunities, for example emerging/frontier markets have higher growth potential compared with more developed regions, albeit with higher risk and volatility.
As well as diversifying regionally, Reeves portfolios are also diversified across several asset classes. As different asset types act differently and carry different levels of risk it allows us the manage the risk of portfolios by changing our allocation to reflect our stance on the market. We see each asset type as a tool to manage our portfolios, each has its own merits which we use together to craft balanced portfolios to reflect each risk level
To further diversify and reduce the correlation of our portfolios, we use different types of funds within the asset types. For example, a smaller companies equity fund will perform differently compared with an equity fund focused on larger cap companies. The aim is to add value through our fund selection, while further spreading the risk of the portfolio with funds which won’t necessarily react to global events in the same way.
This newsletter is for information only and represents the opinion of Reeves Independent Limited only and should not be seen as advice or a recommendation to act.
Note that investments can go down as well as up and you may not get back the full capital invested.