Diversify your portfolio "Eat that free lunch"

As an investor – it is important to diversify.?

The wise have said - Having a diversified portfolio is a free lunch you should not miss!?

Fluctuations in market cycles demonstrates the importance of diversification – the table below shows the returns of various asset indices. Diversification does not assure a profit nor does it protect against loss of principal.?Read disclaimers.

Let’s move on.

Over the last decade, Large Cap companies have had a jolly good ride and delivered solid returns – on the back of ultra-low artificial interest rates. As the real cost of money increases, that party is likely to be over. During the last decade, even though large companies did not deliver any spectacular EPS growth they enjoyed a PE re-rating. They were bond proxies and making money was just too easy. No more.?

Over the next decade, companies will HAVE TO GROW their EARNINGS per share.?

So which companies will grow faster?

Our thinking is: they will likely be Smaller Companies.

They have a denominator advantage, always easier to grow on a lower base. We expect smaller companies to grow faster than the larger ones -- hence drive share prices.?

Larger companies have hundreds of analysts and large fund houses research them – it is a very crowded endeavour and where it is incredibly hard to develop any sort of edge.

In contrast, in a post-MiFID-2 world, many brokers have reduced their research coverage of smaller companies. This relative lack of information on smaller companies means that they are more likely to be overlooked and potentially under-priced. The hidden gems are where we seek to find value – for more information please visit https://sterlingim.co.uk/about-us/#investing-in-smaller-companies

Other reasons why we like smaller companies:

GLOSSARY : for the block chart.

Large Cap Stocks are represented by the Russell 1000 Index, which measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market.

Large Growth Stocks are represented by the Russell 1000 Growth Index, which measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.

Large Value Stocks are represented by the Russell 1000 Value Index, which measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values.

Mid Cap Stocks are represented by the Russell Midcap Index, which measures the performance of the mid-cap segment of the U.S. equity universe. The Russell Midcap Index is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap Index represents approximately 31% of the total market capitalization of the Russell 1000 companies.

Small Cap Stocks are represented by the Russell 2000 Index, which measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000 Index, representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership.

Foreign Stocks are represented by the MSCI EAFE Index (Europe, Australasia, and Far East), which is a widely followed index of common stocks from 22 developed market countries.

Emerging Markets are represented by the MSCI Emerging Markets Index, which measures the performance of stocks in global emerging market countries.

Real Estate is represented by the Wilshire U.S. REIT Index, which measures the performance of U.S. publicly traded Real Estate Investment Trusts.

Commodities are represented by the Bloomberg Commodity Total Return index, which is composed of futures contracts and reflects the returns on a fully collateralized investment in the BCOM. This combines the returns of the BCOM with the returns on cash collateral invested in 13 week (3 Month) U.S. Treasury Bills.

Bonds are represented by the Bloomberg Barclays U.S. Aggregate Bond Index, which covers the USD-denominated, investment-grade, fixed-rate, taxable bond market. The index includes government and corporate securities, mortgage-backed securities, and asset-backed securities, with maturities of at least one year.

The Diversified Portfolio is represented by an equal portion (10%) of the 10 indices in the periodic table. Standard Deviation measures how widely performance has varied from an average, and it is an indicator for potential volatility. A high standard deviation indicates that the range of performance has been wide, identifying greater potential volatility. The standard deviations shown are calculated by Morningstar. Morningstar computes standard deviation using the trailing monthly total returns for the appropriate time period. All of the monthly standard deviations are then annualized. All Rights Reserved by Morningstar. The table is taken from American Century Proprietary website Certain information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.