Question 4: Diversification across industry sectors with a single market and across multiple economies should result in higher levels of diversification benefits. a) The table (on the next page) provides the top ten holding and industry weighting for the indexes from three markets US, UK and Japan. Using the information from this table, explain if investing in a capitalisation-weighted market index fund results in a well-diversified portfolio for that market? b) For a portfolio that allocates a third across each market by investing in the market index fund, explain if this portfolio is now be better diversified, than each single market portfolios? S&P 500 FTSE Nikkie 225 30-Apr- 30-Apr- As of 2019 As of 2019 As of 30-Apr-2019 Collected - Top Collected - Top Collected Top Holdings Weight Holdings Weight Holdings Weight HSBC HOLDINGS TOYOTA MOTOR MICROSOFT ORD 4.07 ORD 7.29 ORD 4.22 SOFTBANK GROUP APPLE ORD 3.65 BP ORD 6.12 ORD 2.56 AMAZON COM ORD 3.23 ROYAL DUTCH SHELL CL A ORD 6.02 KEYENCE ORD 1.8 ROYAL DTCH SHL B FACEBOOK CL A ORD 1.87 ORD 5.04 SONY ORD 1.79 BERKSHIRE HATHWAY CL B ORD 1.71 DIAGEO ORD GLAXOSMITHKLINE 4.28 MITSUB UFJ FG ORD 1.73 JPMORGAN CHASE ORD 1.54 ORD 4.26 TAKEDA PHARM ORD 1.64 JOHNSON & JOHNSON ORD 1.53 ASTRAZENECA ORD 3.96 SMFG ORD 1.44 BRITISH AMERICAN ALPHABET CL C ORD 1.48 TOBACCO ORD 3.74 HONDA MOTOR ORD 1.35 ALPHABET CL A ORD 1.46 UNILEVER ORD 2.82 KDDI ORD 1.2 EXXON MOBIL ORD 1.38 RIO TINTO ORD 2.82 NINTENDO ORD 1.15 Collected - Industry Weight Collected - Industry Collected - Industry Sector % Sector Weight Sector Weight TECHNOLOGY 26.83 FINANCIALS 22.11 INDUSTRIALS 26.87 CONSUMER FINANCIALS 15.89 ENERGY 19.59 CYCLICALS 18.18 CONSUMER NON- HEALTHCARE 13.32 CYCLICALS CONSUMER CYCLICALS 13.3 HEALTHCARE 17 FINANCIALS 9.19 TECHNOLOGY 14.2 8.96 CONSUMER CONSUMER NON- INDUSTRIALS 10.32 CYCLICALS 8.59 CYCLICALS 8.57 CONSUMER NON- CYCLICALS 7.03 INDUSTRIALS 7.95 HEALTHCARE 8.26 TELECOMMUNICATI ENERGY 5.2 BASIC MATERIALS TELECOMMUNICATI 7.37 ONS SERVICES 5.99 UTILITIES 3.23 ONS SERVICES 3.13 BASIC MATERIALS 4.98 BASIC MATERIALS 2.63 UTILITIES 3.09 UTILITIES 1.81 TELECOMMUNICATION S SERVICES 1.92 TECHNOLOGY 0.72 ENERGY Total 99.67 Total 98.74 Total 0.97 98.79 (Due to rounding)