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)Fora 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?
Here is the table:
S&P 500 FTSE 30-Apr- As of 2019 As of Collected - Top Collected - Top Holdings Weight Holdings HSBC HOLDINGS MICROSOFT ORD 4.07 ORD Nikkie 225 30-Apr- 2019 As of 30-Apr-2019 Collected - Top Weight Holdings Weight TOYOTA MOTOR 7.29 ORD 4.22 SOFTBANK GROUP 6.12 ORD APPLE ORD AMAZON COM ORD 3.65 BP ORD ROYAL DUTCH SHELL 3.23 CL A ORD ROYAL DTCH SHL B 1.87 ORD 6.02 KEYENCE ORD 5.04 SONY ORD 1.79 FACEBOOK CL A ORD BERKSHIRE HATHWAY CL B ORD 4.28 MITSUB UFJ FG ORD 1.73 DIAGEO ORD GLAXOSMITHKLINE ORD 1.54 4.26 TAKEDA PHARM ORD 1.64 JPMORGAN CHASE ORD JOHNSON & JOHNSON ORD 3.96 SMFG ORD 1.44 ALPHABET CL CORD ALPHABET CLA ORD EXXON MOBIL ORD 1.53 ASTRAZENECA ORD BRITISH AMERICAN 1.48 TOBACCO ORD 1.46 UNILEVER ORD 1.38 RIO TINTO ORD 3.74 HONDA MOTOR ORD 2.82 KDDI ORD 2.82 NINTENDO ORD 1.35 1.2 1.15 Weight Collected - Industry Sector TECHNOLOGY % Collected - Industry Sector FINANCIALS 26.83 Weight 22.11 Collected - Industry Sector INDUSTRIALS CONSUMER CYCLICALS Weight 26.87 FINANCIALS 19.59 18.18 HEALTHCARE CONSUMER CYCLICALS 15.89 ENERGY CONSUMER NON- 13.32 CYCLICALS HEALTHCARE CONSUMER 10.32 CYCLICALS 17 FINANCIALS 9.19 TECHNOLOGY CONSUMER NON- 8.59 CYCLICALS 14.2 8.96 8.57 INDUSTRIALS CONSUMER NON- CYCLICALS 7.03 INDUSTRIALS 8.26 7.95 HEALTHCARE TELECOMMUNICATI 7.37 ONS SERVICES ENERGY 5.99 5.2 BASIC MATERIALS TELECOMMUNICATI 3.23 ONS SERVICES 2.63 UTILITIES 3.13 BASIC MATERIALS 3.09 UTILITIES 4.98 1.81 UTILITIES BASIC MATERIALS TELECOMMUNICATION S SERVICES Total 1.92 TECHNOLOGY 99.67 Total 0.72 ENERGY 98.74 Total 0.97 98.79 Ini S&P 500 FTSE 30-Apr- As of 2019 As of Collected - Top Collected - Top Holdings Weight Holdings HSBC HOLDINGS MICROSOFT ORD 4.07 ORD Nikkie 225 30-Apr- 2019 As of 30-Apr-2019 Collected - Top Weight Holdings Weight TOYOTA MOTOR 7.29 ORD 4.22 SOFTBANK GROUP 6.12 ORD APPLE ORD AMAZON COM ORD 3.65 BP ORD ROYAL DUTCH SHELL 3.23 CL A ORD ROYAL DTCH SHL B 1.87 ORD 6.02 KEYENCE ORD 5.04 SONY ORD 1.79 FACEBOOK CL A ORD BERKSHIRE HATHWAY CL B ORD 4.28 MITSUB UFJ FG ORD 1.73 DIAGEO ORD GLAXOSMITHKLINE ORD 1.54 4.26 TAKEDA PHARM ORD 1.64 JPMORGAN CHASE ORD JOHNSON & JOHNSON ORD 3.96 SMFG ORD 1.44 ALPHABET CL CORD ALPHABET CLA ORD EXXON MOBIL ORD 1.53 ASTRAZENECA ORD BRITISH AMERICAN 1.48 TOBACCO ORD 1.46 UNILEVER ORD 1.38 RIO TINTO ORD 3.74 HONDA MOTOR ORD 2.82 KDDI ORD 2.82 NINTENDO ORD 1.35 1.2 1.15 Weight Collected - Industry Sector TECHNOLOGY % Collected - Industry Sector FINANCIALS 26.83 Weight 22.11 Collected - Industry Sector INDUSTRIALS CONSUMER CYCLICALS Weight 26.87 FINANCIALS 19.59 18.18 HEALTHCARE CONSUMER CYCLICALS 15.89 ENERGY CONSUMER NON- 13.32 CYCLICALS HEALTHCARE CONSUMER 10.32 CYCLICALS 17 FINANCIALS 9.19 TECHNOLOGY CONSUMER NON- 8.59 CYCLICALS 14.2 8.96 8.57 INDUSTRIALS CONSUMER NON- CYCLICALS 7.03 INDUSTRIALS 8.26 7.95 HEALTHCARE TELECOMMUNICATI 7.37 ONS SERVICES ENERGY 5.99 5.2 BASIC MATERIALS TELECOMMUNICATI 3.23 ONS SERVICES 2.63 UTILITIES 3.13 BASIC MATERIALS 3.09 UTILITIES 4.98 1.81 UTILITIES BASIC MATERIALS TELECOMMUNICATION S SERVICES Total 1.92 TECHNOLOGY 99.67 Total 0.72 ENERGY 98.74 Total 0.97 98.79 Ini
