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 document is issued and approved by Square Mile Investment Services Limited which is authorised and regulated by the Financial Conduct Authority. Square Mile Investment Services Limited is a wholly owned subsidiary of Titan Wealth Holdings Limited. The company is registered in England and Wales with Company Number 12391442.
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