Investment Ideas:
Diversification is not a compromise

          The choppiness in global equity markets that started in May continued through early July, as investors reacted to monetary-policy announcements and geopolitical surprises. Since June 2, the average movement in the MSCI All Country World Index over a rolling 10-week period has been 15% to 20%, a range not seen since the first half of 2003 during the US invasion of Iraq . It is tempting to see the world as an increasing set of negatives such as rising interest rates and global inflation, calculated terrorism and persistently high energy prices to name a few. But this is the time when the toughs get going when the going gets tough.

          Many investors will no doubt move into safer assets and out of riskier equity markets or out of equities altogether as their tolerance for risk reaches its limit. However, there is a better way to ride out the current challenges. A review of the performance of various asset class indices during the past three decades (1979 through 2005), suggests that a diversified portfolio consisting of a mixture of large cap stocks, small cap stocks, international stocks, and Real Estate Investment Trusts, REITs (40%, 20%, 30% and 10% respectively) would provide superior risk-adjusted returns to most single asset class portfolios. The returns shown below are based on the returns of indices representing each asset class.

Chart 1

          The lesson to be learnt here is that diversification is not a compromise but a smart way to invest. In this way you get to enjoy the best of both worlds i.e. higher investment return with far less volatility. As for local investors, the benefits of a globally diversified portfolio will be even more apparent than a portfolio with only Thai assets because securities in each region of the world are likely to be less correlated to each other. A good place to start diversifying your portfolio is to look at our Global Allocation Fund (GAF), which invests in more than six hundred securities in sixty countries. For more information on how to diversify your portfolio, please call our investment planners on Tel. 0-2352-4000.