Why now more than ever
Diversification has always been the bedrock of our investment philosophy at Square Mile, but with US equity dominance starting to falter, it’s never been more vital. Thanks to a volatile backdrop shaped by macroeconomic uncertainty and unpredictable market outcomes, diversification is the essential tool we use to protect portfolios and preserve investors’ long-term value.
Given its resounding relevance in today’s investment world, here, we explore how and why we use it throughout our investment process.
The changing market environment
History has shown us that the trajectory of financial markets is never a straight upward line and performance can change quickly. Top-performing asset classes change year to year, often unpredictably. For example, in 2024, US equity names provided the best returns by far, with European ex UK counterparts only producing paltry returns. So far, however, in the first half of 2025, it’s been all change with European names being the clear top performers, while US equities have struggled to grow at all.
That’s precisely why diversification matters.
It allows us to invest in a broad range of possible outcomes, rather than being entirely reliant on just one theme or idea, however tempting it may be to chase short-term wins. Instead, a diversified approach can help limit losses and deliver consistent returns over time by investing across asset classes, geographies, sectors and styles.
Furthermore, with external shocks being inevitable, diversification provides a cushion, acting as a shock absorber to smooth performance and preserve capital during highly turbulent times. Consider a 60/40 portfolio split between top-tier US equities and 10-year Treasuries. This portfolio has consistently outperformed US cash rates across 5- and 10-year periods - crucially, even through various market and geopolitical crises. So, while cash may feel like a safe haven in the short term, over time, diversified investments have shown greater resilience and return potential.
Square Mile’s approach
In fact, at Square Mile, we believe there is more to diversification than just balancing equities and bonds. As recent years have shown, equities and bonds can move together, so taking a fuller, more rounded approach to diversification is key.
To us, that means researching and actively investing in sub-sectors to gain exposure to regional equities. It also means investing in different types of strategies: active and passive, growth and value, large cap focused and smaller companies. Our fixed income holdings follow a similar philosophy. We also include alternative assets, such as commodities, gold and select option strategies, which can provide downside protection and hedge against specific risks.
Ultimately, we do so to build portfolios that offer flexibility. Because, by having a broad range of investment levers at our disposal, our diversified approach gives us time to seek out the best investments to weather the immediate storms and deliver sustainable returns.
Mark, Chris, Scott, Dan and Florrie
Square Mile Investment Management Team
Important Information
This article is marketing material issued and approved by Square Mile Investment Services Limited which is registered in England and Wales (08743370) and is authorised and regulated by the Financial Conduct Authority. Square Mile Investment Services Limited is a wholly owned subsidiary of Titan Wealth Holdings Limited (Registered Address: 101 Wigmore Street, London, W1U 1QU.
Our thoughts expressed in this article relate only to the portfolios we manage or advise on, on behalf of our clients and as such may not be relevant to portfolios managed by other parties.
This article is aimed at professional advisers and regulated firms only and should not be passed on to or relied upon by any other persons. It is not intended for retail investors, who should obtain professional or specialist advice before taking, or refraining from, any action on the basis of this document. Square Mile Investment Services Limited (“SMIS”) makes no warranties or representations regarding the accuracy or completeness of the information contained herein. This information represents the views and forecasts of SMIS at the date of issue but may be subject to change without reference or notification to you. SMIS does not offer investment advice or make recommendations regarding investments and nothing in this document shall be deemed to constitute financial or investment advice in any way and shall not constitute a regulated activity for the purposes of the Financial Services and Markets Act 2000. This article shall not constitute or be deemed to constitute an invitation or inducement to any person to engage in investment activity and is not a recommendation to buy or sell any funds or investments that are mentioned during this document. Should you undertake any investment activity based on information contained herein, you do so entirely at your own risk and SMIS shall have no liability whatsoever for any loss, damage, costs or expenses incurred or suffered by you as a result. SMIS does not accept any responsibility for errors, inaccuracies, omissions, or any inconsistencies herein. Past performance is not an indication of future performance.
Source of data: Square Mile, unless otherwise stated.
Date: June 2025, unless otherwise stated.