Chart of the Month
Diversification is known throughout the investment profession as being most-often associated with the late Harry Markowitz, the founder of Modern Portfolio Theory, who was quoted saying: “Diversification is the only free lunch in investing.” Conceptually, the idea is that investors can combine assets that do not move perfectly together as a means of lowering risk, while still maintaining a constant level of expected return. In Markowitz’s analogy to “free lunch,” it is referring to the lack of trade-off required between risk and reward such that you get “less risk” without a “cost” of lower returns.
Our definition at 6 Meridian is a little more straightforward in that we like to suggest that if you do not have an asset in your portfolio that is not working or that you are not upset with at any given time, then your portfolio likely is not truly diversified.
Diversification can stretch a lot of different ways. It can be diversifying across the asset classes (Stocks vs. Bonds), geographies (US vs. Non-US), sectors (Technology vs. Healthcare), or a variety of other offshoots from those. We discussed this to some extent as recently as our July 2025 Viewpoint.
Our table this month looks a little more granularly into what we thought was an interesting nuance in an industry trend and subsequent performance, focusing on Chinese equities. Investors became disinterested in Chinese equities throughout 2023, and rightfully so, because it was clearly the global laggard.
Looking at a year-end statement that year might have led some to think (and act upon) that it simply is not worth owning Chinese equities because they don’t work, just look at everything else! This was happening, and you can look at growing AUM in EM (Ex-China) funds vs. shrinking AUM in strictly China funds as evidence. Fast-forward to today, and that would likely be reviewed as a disappointing move as Chinese equities have now outperformed everything else since.
If you go back to our definition of diversification, this situation fits nicely. Sure, one line item in the portfolio looked miserable for a year, but that should be expected, especially in shorter time horizons. By being aware of that diversification and how it works, investors can be set up for a more stabilized path to achieving their objectives.
2025 Tax Reference Guide
The 2025 Tax Reference Guide offers a detailed overview of the latest federal tax updates, shaped by the enactment of the One Big Beautiful Bill Act (OBBBA). This transformative legislation introduces a wide range of changes that impact tax planning for individuals, families, and businesses. Key updates include expanded deductions, increased credits, revised contribution limits, and adjustments to estate and business tax provisions. The guide serves as a valuable resource for navigating these updates and optimizing financial strategies of the new law.
You can access the guide here.
