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Diversification, Overconfidence and Divergent Results – Entasis Newsletter 3Q18

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Section Summary

  • Opportunity & Nerve – If we can assess the valuation opportunity of investment alternatives with discipline, nerve is replaced with trust in our work.
  • Market Notes – Returns across asset classes diverged considerably in the third quarter, continuing a trend building throughout the year, as emerging market pressures intensified and interest rates pushed higher while corporate earnings growth remained strong.
  • Equity & Fixed Income Comments – For the most part, our broad portfolio positioning in the equity and fixed income components of client portfolios is unchanged. We are conducting detailed research on real estate and closed-end fund opportunities as we believe both areas could offer intermediate- to long-term return potential in client portfolios. Our work may or may not result in investments, but the current investing environment has generated interest in both areas.
  • Research Focus – A review of diversification. Diversification can reduce portfolio volatility and may assist in modifying behavior – specifically overconfidence in an ability to “outsmart” the market.
  • Client Focus – The Global Industry Classification Standards (GICS) recently implemented the largest revision to its methodology in its 19-year history. Roughly 2,100 companies were impacted globally as the evolution of many business models resulted in the introduction of a Communication Services sector.
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