Diversification thwarted if your investments overlap
Overlapping can dampen returns and add to the costs of your investment
The dramatic 80% loss in the price of Steinhoff shares in the past week again proves how diversification reduces investment risk, as many large multi-asset unit trust funds had exposures to the share of below 1% and broad index trackers less than 3%, resulting in relatively small losses for most investors. However, you need to be careful: when investing in more than one unit trust fund or other pooled investment, do not inadvertently overlap the underlying investments. The diversification of investments across asset classes such as shares, properties, bonds and cash is a sound strategy, but overlapping or replication of the underlying securities can reduce the impact and the benefits of diversification, dampen returns and add to the cost of your investments, says Discovery Invest financial adviser Claire van Wyk. The four biggest balanced or multi-asset funds in South Africa share similar objectives and strategies and, when their before-fee performance is compared, their returns are...
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