The only way you can diversify your portfolio

The point of a diversified portfolio is so that, as one asset class falls, another rises to offset your losses. But as the world embraces globalisation, asset classes are more and more closely tied – and now most fall and rise in tandem. So is genuine diversification still possible?

One of my richer friends told me last week that he expected his hedge fund holding to be down by around 10% or so by the end of the year. Not bad, he said, given the state of the markets. Hmm, I said, but weren't you expecting it to make you regular absolute returns? Not in this sort of market, he said. All of which made me wonder what sort of market he expected his hedge funds to outperform in.

These alternative investments have long been sold to us as being uncorrelated to the wider equity market and therefore an essential part of a diversified portfolio. When equity markets go down, hedge funds are supposed to keep going up thanks to their cleverness with derivatives and their ability to go short as well as long. Their managers are supposed to be able to operate above the rough and tumble of ordinary markets and of ordinary investors.

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Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.