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 capitalization-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?
FTSE S&P 500 30-Apr- As of 2019 Collected - Top Holdings Weight As of 30-Apr-2019 Nikkie 225 30-Apr- 2019 As of Collected - Top Weight Holdings TOYOTA MOTOR ORD SOFTBANK GROUP 6.12 ORD Collected - Top Holdings HSBC HOLDINGS ORD Weight MICROSOFT ORD 4.07 APPLE ORD AMAZON COM ORD BP ORD ROYAL DUTCH SHELL CL A ORD ROYAL DTCH SHLB ORD 6.02 KEYENCE ORD 1.87 5.04 SONY ORD FACEBOOK CL A ORD BERKSHIRE HATHWAY CL BORD 1.71 4.28 MITSUB UFJ FG ORD DIAGEO ORD GLAXOSMITHKLINE ORD 1.54 4.26 TAKEDA PHARM ORD JPMORGAN CHASE ORD JOHNSON & JOHNSON ORD 3.96 SMFG ORD ALPHABET CL CORD ALPHABET CL A 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 Weight 22.11 Collected - Industry Sector INDUSTRIALS CONSUMER CYCLICALS Weight 26.87 26.83 FINANCIALS 15.89 19.59 18.18 17 HEALTHCARE CONSUMER CYCLICALS 13.32 13.3 ENERGY CONSUMER NON- CYCLICALS HEALTHCARE CONSUMER CYCLICALS 9.19 14.2 8.96 000 FINANCIALS TECHNOLOGY CONSUMER NON- CYCLICALS 10.32 8.59 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 FTSE S&P 500 30-Apr- As of 2019 Collected - Top Holdings Weight As of 30-Apr-2019 Nikkie 225 30-Apr- 2019 As of Collected - Top Weight Holdings TOYOTA MOTOR ORD SOFTBANK GROUP 6.12 ORD Collected - Top Holdings HSBC HOLDINGS ORD Weight MICROSOFT ORD 4.07 APPLE ORD AMAZON COM ORD BP ORD ROYAL DUTCH SHELL CL A ORD ROYAL DTCH SHLB ORD 6.02 KEYENCE ORD 1.87 5.04 SONY ORD FACEBOOK CL A ORD BERKSHIRE HATHWAY CL BORD 1.71 4.28 MITSUB UFJ FG ORD DIAGEO ORD GLAXOSMITHKLINE ORD 1.54 4.26 TAKEDA PHARM ORD JPMORGAN CHASE ORD JOHNSON & JOHNSON ORD 3.96 SMFG ORD ALPHABET CL CORD ALPHABET CL A 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 Weight 22.11 Collected - Industry Sector INDUSTRIALS CONSUMER CYCLICALS Weight 26.87 26.83 FINANCIALS 15.89 19.59 18.18 17 HEALTHCARE CONSUMER CYCLICALS 13.32 13.3 ENERGY CONSUMER NON- CYCLICALS HEALTHCARE CONSUMER CYCLICALS 9.19 14.2 8.96 000 FINANCIALS TECHNOLOGY CONSUMER NON- CYCLICALS 10.32 8.59 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
