Why your portfolio may be less diversified than you think, and one easy solution

I was recently reminded of a fact some find surprising. If you invest in a global equity tracker – generally considered an example of broad diversification – as much as a quarter of your money is allocated to the 10 largest holdings. Just a decade ago, the equivalent figure was less than 10%.

That’s bad news for investors seeking diversification. As global stock markets have become more concentrated, those who invest in broad equity indices find themselves increasingly at risk of extreme outcomes.

Even if you’re a DIY investor looking beyond equity indices, your portfolio may be less diversified than you think. This is something I realised a few years ago. After managing my own investments for 30+ years a lot of redundancy and overlap had crept in. It can happen easily.

It’s with my own experience in mind that we created the Wealth Club Portfolio Service, our low-cost, zero-hassle managed service. You can invest via an ISA, a SIPP, a General Investment Account, or all three. Unlike most online wealth managers, we don’t simply invest in passive index trackers. We also use actively managed funds and investment trusts to add breadth to our portfolios.

Our portfolios contain 30-45 funds, giving exposure to thousands of investments spread across the globe in a variety of asset classes, fund types and investment styles. Below are three examples – patient long-term plays with their own differentiated return drivers.

1. Scottish Mortgage Investment Trust – an active equity manager

Scottish Mortgage is a UK investment trust managed by Edinburgh-based Baillie Gifford.

The trust has a long history going back to 1909. It aims to identify, own and support the world’s most exceptional growth companies.

Scottish Mortgage believes that only a few companies really matter, and it seeks out those names. A few large holdings mean the portfolio is relatively concentrated despite holding 50 to 100 public and private businesses. Among the trust’s private holdings – which can’t be accessed directly via listed markets – are world-class firms such as SpaceX and Stripe.

The manager specifically looks for businesses with the capacity to absorb shocks and ‘reorient without losing momentum’. It pays little attention to short-term market noise, preferring to focus on deeper company fundamentals. This is reflected in an average holding period which, at nearly 10 years, is longer than that of most peers.

Scottish Mortgage’s approach has paid off over the long term. Over the past 20 years, an investment in Scottish Mortgage would have increased by 16x, although there have been bumps along the way (see chart below). Past performance is not a guide to the future.

Many investors like to include some fixed income exposure in their portfolio.

A common approach is to use a global bond index fund. However, these indices are often debt-weighted – in other words, dominated by large issuers which tend to have lower yields.

Our Portfolio Service takes a different approach. One notable holding is Man High Yield Opportunities, an actively managed bond fund which has historically had a low correlation to traditional fixed income positions.

The fund has an unconstrained ‘go anywhere’ approach. It looks for smaller borrowers that may be under-researched and liable to mispricing. Holdings can be fixed or floating rate; issued by corporate or public entities; include distressed or special situations and so on. Man High Yield Opportunities is also able to take short positions when bearish on an issuer.

Manager Mike Scott and team have a strong track record, including during challenging markets. The fund has comfortably outperformed market benchmarks over the past six years (see chart), and has a GBP yield to maturity of around 8-9% currently. Past performance is not a guide to the future.

Property is an asset class which could help to diversify a portfolio of stocks and bonds but is underutilised by investors for several reasons – including poor sentiment following the pandemic and higher interest rates.

Nonetheless, commercial property could potentially provide investors with predictable and growing cashflows. And in the context of subdued sentiment, nimble and active fund managers, such as City veteran and lead manager of TR Property, Marcus Phayre-Mudge, may be able to profit from attractive valuations.

Phayre-Mudge and team invest in the shares of European property-related businesses and buy select physical properties in the UK. They believe physical ownership helps them keep an ear to the ground – leading to a better understanding of property market dynamics and improved communication with portfolio companies.

TR Property views real estate markets as not efficient or transparent and attempts to capitalise on mispriced securities. The fund has outperformed its benchmark during the past 10-15 years (see chart). It has a current dividend yield of close to 5% (August 2025). It sees green shoots of dividend growth returning to the sector following several years in the doldrums. Past performance is not a guide to the future.