Diversification – What’s the point?

(For Finance Practitioners Only)

Diversification is one of those things that clients either love or hate. Typically, they love diversification when equity markets are volatile. On the flipside, they wish they had less diversification when markets are strong.

Right now, many investors, whether they like it or not, are being funnelled into an increasingly concentrated set of stocks. This is happening either directly, by owning those company shares outright, or indirectly through concentrated indexes – with the so-called “Magnificent 7” now making up 35% of the S&P 500 in the US. Index and algorithmic trading is said to be a major cause.

As share markets press all-time highs and their portfolios achieve double digit growth, this is the time when clients are typically less concerned about diversification. However, some would argue that this is precisely the time when genuine diversification is required.

Current valuations are assuming continued aggressive revenue growth and lofty profit margins for the likes of NVIDIA. Can these be maintained in the face of new entrants such as Deepseek? We feel it is time to unpack the impact on valuations in the tech space – and the importance of diversification across client portfolios.

Brendan Paul, Atrium Senior Portfolio Manager, Co-Head of Multi Asset, will present on the factors which could impact markets in the short and medium term and how advisers can address potential ‘under-diversification’ with clients.