Portfolio Diversification

While the asset allocation decision determines the allocation to the various asset classes, it does not determine how assets should be diversified within each asset classes. That is the purpose of portfolio diversification. Specifically, portfolio diversification determines the investment style categories and dollar allocation to use in diversifying portfolio assets. Diversification of your portfolio is important. distributing your assets over various classes is considered smart investment management. Placing all your equity or bond market assets in one area is akin to placing all your eggs in one basket, a large and potentially damaging risk.

Equity Market Diversification

Equity categories include:

• Company size ranges (large, mid, small)
• Investment approach (value,core, growth), and
• Domestic vs. international (including developed and/or emerging markets)

See a graphical representation of the stock market.

Bond Market Diversification

• Maturity (short, intermediate, and long)
• Quality (high, medium, or low quality)
• Developed vs. international (including developed markets and/or emerging markets)

See a graphical representation of the bond market.

How Does JIC Determine The Allocation To Each Style Segment?

At times during an economic cycle, different investment strategies may be appropriate. Instead of keeping a static allocation to various investment styles, JIC believes it is important to maintain a flexible style allocation strategy in order to reflect changing macroeconomic, fundamental, and technical characteristics. This approach attempts to add value by taking advantage of both style trends and manager selection.

 

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