The 2020s have swung investors between exuberance and despair. What this decade has reminded us is that markets are driven by forces that are nearly impossible to predict and that genuine diversification, not just across firms or geographies but also asset classes, styles and valuation, is the most reliable basis for long-term returns.
Diversification is famously the only free lunch in finance and its value goes beyond performance: portfolios built to withstand drawdowns also protect investors from the emotion-driven decisions that volatile markets so often provoke.
With a wave of mega-cap initial public offerings expected to deepen the S&P 500's already significant concentration in AI and technology, now is the time to ask: how truly diversified are you? Our VT Chelsea Managed Funds range is built on exactly this principle, blending active and passive strategies across asset classes and geographies with a valuation-conscious approach and no obligation to follow benchmarks. Here are three holdings that show how we stay diversified across all market conditions.
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Three funds to consider
Despite its global remit, the Ranmore Global Equity fund holds just 5% in technology and 25% in North America, vastly underweight compared with the index on both counts. Manager Sean Peche, who has more than 25 years of experience, tilts towards businesses with pricing power and recurring demand.
The fund has higher exposure to sectors such as consumer discretionary, consumer staples and communication services. The fund trades on 8.8 times forward earnings against 19.3 times for the index, and offers a yield of 4% compared with the index's 1.7%. In 2022, when growth and technology stocks sold off sharply, Ranmore delivered positive returns.
Ironically, it is the so-called “Jurassic Park” industries such as mining that may be among the best positioned to benefit from the AI revolution rather than be disrupted by it. You cannot commoditise what has already been commoditised and you cannot conjure a copper mine out of thin air. Meanwhile, the build-out of AI infrastructure, from data centres to robotics, is driving an explosion in demand for the very materials the BlackRock World Mining Trust (LSE: BRWM) holds.
Copper, one of its largest exposures, is essential to electronics, data centres and electrification, and AI-driven growth in global GDP is only expected to accelerate that demand further. Managed by one of the most experienced teams in the sector, the trust spans everything from explorers and developers to major diversified producers across gold, copper, iron-ore and platinum-group metals, with an attractive dividend on top. Natural resources and mining equities have a historically low correlation to technology stocks and real assets often outperform when stretched tech valuations come under pressure.
UK smaller companies are currently experiencing their longest period of underperformance in years, yet over most long-term timeframes, small caps have outperformed their larger counterparts. UK small caps are where some of the best value available in global equity markets is right now and overseas investors have been quicker to recognise it than many at home. Philip Rodrigs, a decorated UK small-cap manager with sector-leading returns dating back to 2006, runs WS Raynar UK Smaller Companies with a high-conviction, bottom-up approach targeting firms with strong growth potential, improving margins and share prices trading well below intrinsic value.
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