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When niche funds grow too prominent

Keep an eye - and a lid – on position sizes
When niche funds grow too prominent
  • Some funds have risked becoming a major part of portfolios, despite their specialist nature
  • We look at where position size limits might work well

From diversification to broader allocation rules, any discussion about portfolio construction can seem fairly academic when most assets are on the rise. Hefty falls like those seen this year, however, can expose all manner of vulnerabilities – including the risk that fund holdings with a more specialised approach, many of which have powered portfolios in recent years, prove particularly painful as markets turn.

These outcomes can sometimes happen almost accidentally. For those who follow the core/satellite investment approach of putting the bulk of their money into well diversified holdings while adding smaller, more niche holdings at the margins, it is important not to inadvertently let a more specialist fund become too major a part of a portfolio. Here, we look at those names that may have become too prominent ahead of the sell-off, and the funds that could do so in future.

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