Diversify by investment style
Portfolio managers may have different investment philosophies or use different styles of investing to meet the investment objectives of a fund. Choosing funds with different investment styles allows you to diversify beyond the type of investment. It can be another way to reduce investment risk.
4 common approaches to investing
- Top-down approach – looks at the big economic picture, and then finds industries or countries that look like they are going to do well. Then invest in specific companies within the chosen industry or country.
- Bottom-up approach – focuses on selecting specific companies that are doing well, no matter what the prospects are for their industry or the economy.
- A combination of top-down and bottom-up approaches – A portfolio manager managing a global portfolio can decide which countries to favour based on a top-down analysis but build the portfolio of stocks within each country based on a bottom-up analysis.
- Technical analysis – attempts to forecast the direction of investment prices by studying past market data.