In an environment where the number of stocks in some markets is now surpassed by the number of index funds investing there, Henna Hemnani explains the importance of achieving adequate portfolio diversification
One of the biggest challenges investors face today is in constructing truly diversified portfolios. A primary cause of this is the extreme rise of exchange-trade funds (ETFs), the degree of which is quite scary. In the US, for example, we have reached a point where there are more indices than stocks, and where the average stock is included in 115 indices. In this setting, it is increasingly difficult to find uncorrelated investments. There was a reminder of this recent feature of financial markets a couple of weeks ago when Chinese internet services company Tencent (which is in 130 indi...
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