This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
We think it would be fair to describe the last five years in markets as a little bit rocky. It’s not just the moments of sheer panic – such as when the likely impact of the first wave of the pandemic became clear, or such as when Russia invaded Ukraine – although we have seen plenty of those. It’s also the extreme rotations in style and sector performance, which have resulted from volatile and unpredictable macro and political developments. Truly, you would have needed a crystal ball to anticipate the twists and turns of events and allocate to the right strategies at the right times. The only other way to have done well over the past five years would have been to be diversified.
Last year, we introduced our KTI Spider charts. These are intended to map out the investment trust sector using some key characteristics to position trusts against one another, one of those being diversification. In theory, picking investments with low correlation to one another should improve risk-adjusted returns. We decided to consider how this is borne out in the data and what additional insights could be gained.
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