Diversified Portfolios

We operate a suite of globally diversified model portfolios which are designed to meet the needs of a wide range of investors.  But what exactly is diversification and how does it work?

In simple terms, diversification means not putting all your eggs in one basket.  By spreading investments across many companies, the risks are substantially reduced, and by investing across hundreds or even thousands of companies, you are insulated from the risk that a single specific stock may underperform. 

We can take this principle further by diversifying across different countries and geographical regions. Different markets will perform differently each year.  The leading market in one year will not necessarily be the leader in the next.  Investing in the markets of different countries, reduces the risks further, as investment returns are not tied to just one country’s market but across many. 

Furthermore, throughout any business cycle, there will be different economic conditions which favour a certain style of investing over another.  We further diversify our portfolios by ensuring we hold the right balance of companies which display different financial attributes.  Investment styles, such as value, growth and quality will come in and out of favour across the business cycle, and always being on the right side of these moves is impossible.  Similarly, smaller companies sometimes perform best, whilst in other economic conditions large companies tend to perform better. Holding companies with these different financial attributes, in the right balance in portfolios is key to delivering the best available risk adjusted returns over the long-term.

We can also reduce the risk in portfolios further through a combination of different low correlated asset classes (cash, bonds, property, equities, commodities and derivatives etc.).  In normal market conditions, holding an allocation to bonds alongside equities, can help smooth out a portfolio’s investment returns.  This is because historically they have behaved very differently to each other.  Equities tend to perform better than bonds, however they are also susceptible to much greater price fluctuations.  How the fixed interest allocation is constructed is also important and having the right balance between yield and duration is key depending on the market backdrop.  Our managers consider their overall allocations to Government, Corporate, High Yield and Emerging Market debt, in order to generate the best possible risk adjusted returns from fixed interest.

Holding the right combination of different asset types, across many different geographic regions reduces the overall level of risk, whilst still providing the opportunity for an attractive level of growth.   Investing in a broad mix of investments reduces the potential impact of negative performance from a single asset class for a sustained period, whilst spreading the investments across financial markets around the globe reduces the risks associated with investing in a single market.  How the investments are spread across asset types can be a key determinant of longer-term investment success. 

Gresham Wealth Management carefully construct and maintain our portfolios to help meet the longer term financial objectives of our clients in accordance to their individual attitude to investment risk.  Our portfolios are designed to provide attractive risk adjusted returns over the long-term in order to help make the investment journey, smooth and successful.

Glossary

Duration is a measure of a bond’s price sensitivity to a change in interest rates.  The higher the duration of a bond, the higher its interest rate sensitivity.

Yield is simply the income returned or interest received from a bond.