A SIMPLE DIVERSIFIED PORTFOLIO STRATEGY

Bernd Hanke and Garrett Quigley

We present a simple portfolio construction approach which is a blend of market weights and equal stock and sector weights. Our approach results in a highly diversified portfolio both on a stock level and on a sector level and generates higher portfolio returns at slightly lower risk than a market weighted index. We demonstrate that the higher returns of our diversified portfolio originate both from mitigating the link with market weights and from its higher return benefit due to diversification which we are able to capture because we rebalance our portfolio on a regular basis. Our diversified portfolio is highly implementable and has very high investment capacity.