Equities don't Diversify Equities
Stop buying different funds and calling them diversification
There are investors out there who haven’t met a single fund that they didn’t like. Some of them have sprayed their SIPs over 15-20 funds because they read somewhere that it was good to be “diversified.” Unfortunately, the only thing they have managed to do is replicate a high-cost index fund. The problem is that occasionally, it might pay off.
The market does go through periods of high dispersion where a bunch of funds can drastically outperform the rest of the market. However, dispersion tends to be mean-reverting.
To, illustrate, have a look at the how correlated large-caps and mid-caps are.
The “average” correlation is a stop-over between periods of high and low-correlations.
Sure, one may outperform the other, but that’s not “diversification.”
They are all on the same roller-coaster ride.
Markets this Week
Indian markets were a mess on Friday…
… However, US markets rallied on Friday on the back of Powell’s Jackson Hole speech.
More here: country ETFs, fixed income, currencies and commodities.
Links
What are you supposed to do if your fund manager acts like a retail punter? SEBI says there’s nothing much you or anybody can do… (livemint)
Speaking of SEBI, they have a couple of consultation papers out that are worth a read. The one on Finfluencers (reuters) seems right on the money. However, there’s another one where they want to setup a payment network for RIAs which seems like regulatory overreach. I guess they really want to reduce the number and the role of RIAs…
Index and chill (reuters)
Everything & Everyone Underperforms Eventually (awealthofcommonsense)
Economy
All those bridges to nowhere and ghost cities are coming home to roost.
China has no pain-free solutions for its slowing economy (reuters)
The local government debt that threatens China’s economy (ft)
As long as farming and farmers are outside the reform agenda, we’ll never be “atma nirbhar.”
For FY 2023, the number of people who paid any money towards I-T was 2.23 crore. Down 60% from FY 2020. This explains a lot about the apathy towards shoddy civic works… (thehindubusinessline)
India’s food inflation problem:
Odds & Ends
The placebo effect is not real (tweet)
Meme of the Week
Jerome Powell’s Jackson Hole speech (NSFW)
