Alex Bryan: Nationwide Maximum Diversification US Core Equity ETF is a new fund worth keeping on your radar. It takes a novel approach to diversification, effectively targeting large- and mid-cap U.S. stocks with low correlations with each other.
To do this, it attempts to maximize the ratio of the historical weighted average volatility of the portfolio's holdings to the volatility of the portfolio itself. This is based on the idea that diversification should reduce risk of the portfolio relative to the risk of its holdings. The ratio is larger for portfolios that hold assets with lower correlations to one another because uncorrelated risk largely offsets at the portfolio level. To mitigate active risk, the fund limits its active share to 50%, though it still behaves nothing like the benchmark.
To view this article, become a Morningstar Basic member.
Alex Bryan does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.