Question
Minco Ltd, a large mining company, provides a superannuation fund for its employees. The funds manager says: We know the mining industry well, so we
Minco Ltd, a large mining company, provides a superannuation fund for its employees. The funds manager says: We know the mining industry well, so we feel comfortable investing most of the fund in a portfolio of mining company shares. Advise Mincos employees on whether to endorse the funds investment policy. Mincos employees should not endorse the funds investment policy because it involves the failure to diversify. The wealth of the funds members is already dependent on the prosperity of the mining industry, in that they are employees of a mining company. If their superannuation fund also invests heavily in mining company shares, many members will have most of their wealth invested in one industry. Therefore, their risk can be reduced by investing in a wider range of industries
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