To satisfy shareholders and to create sustainable business models, money managers have made compromises. Unfortunately, the biggest casualty is the individual portfolio—not to mention the individual investor.
Today, most investors are presented with stylized, commoditized options that promise to “manage risk” and to deliver predictable performance.
This is especially true in equity investing. Because in reaction to growing client rosters and ever-increasing quotas, money managers have been forced to create efficiencies. And along the way, the idea of diversification has been distorted.
The premise: Diversification across small-, medium- and large-cap styles and managers will serve as a buffer against market fluctuations.
The problem: Risk isn’t a number. It’s a concept. By attempting to minimize risk, money management frequently creates over-diversification—and misses sound opportunities.
True diversification comes from:
- Investing in the best opportunities with real potential for sustained growth
- Investing across sectors, market capitalizations and geographies
- Including a fixed income strategy designed to preserve capital and generate cash flow
This is investment management the way it was always intended. Today, it can only happen in an environment that’s free from conflict—and where each investor is treated as an individual.