A Clever Approach to Diversification
This exchange-traded fund effectively diversifies risk by targeting stocks with low correlations.
A version of this article appeared in the September issue of Morningstar ETFInvestor. Download a complimentary copy of ETFInvestor by visiting the website.
When it comes to diversification, it is natural to think about spreading investments out across many securities, sectors, regions, and asset classes. That is a good starting point, but it doesn’t tell the whole story. A portfolio may not be as well-diversified as it first appears if its holdings have common, highly correlated risk. Nationwide Maximum Diversification U.S. Core Equity ETF (MXDU) improves on traditional approaches to diversification by attempting to build a portfolio of stocks with low correlations to one another. The fund should exhibit lower risk than, and competitive returns with, the Russell 1000 Index over the long term.
Alex Bryan does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.