Is concentration the new diversification?

Medalist fund manager Virginia Au argues that the constraint of finding good investments, and the paucity of time, make concentration a good strategy

Ruth Saldanha 8 April, 2019 | 2:00PM

A major truism, both in investing and in life, is that you should not put all your eggs in one basket, meaning it is important to diversify. But sometimes putting your eggs in just a few baskets can work out best.

In the recent past, we’ve talked about how diversification, as traditionally understood, is a myth that works the least when you need it the most. In some cases, though an investor might feel diversified, it is possible they are not diversified at all.

For example, if an investor were to have a portfolio that consisted only of the S&P/TSX Composite index, they hold over 200 stocks. However, in terms of sectors, financials account for 33% and energy accounts for 18%. These two sectors alone account for half of the TSX. Not too diversified.

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Ruth Saldanha

Ruth Saldanha  Ruth Saldanha is Senior Editor at Morningstar.ca

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