Mutual Fund Strategies

Discussing Mutual Fund Strategies

MUTUAL FUND STRATEGIES

In the context of mutual fund investing, Larry Kleinmintz says divergence refers to investments that move independently of one another.

It’s important because too much correlation can hamper long-term growth potential. If your mutual funds are concentrated in a particular sector or asset class, it can leave you vulnerable to a downturn in that area.

There are numerous ways to apply divergence to investment assets, including:

  • Industry sector. Because the financial and energy sectors are such a big part of Canada’s equity markets, they tend to be a big part of Canadian equity funds. For divergence, we might look to funds that focus on technology or pharmaceuticals, sectors that are affected by different factors than financials and energy.
  • Market capitalization. A mix of largecap, mid-cap, and small-cap funds helps to ensure exposure to companies of all sizes, which tend to outperform at different stages of the market cycle.
  • Geography. Broad-based international equity funds or funds that focus on specific regions offer divergence from the Canadian economy and currency.

If you’d like to know more about how divergence applies to your funds, we’d be happy to go over your portfolio in detail.