Granular Portfolio

What Is a Granular Portfolio?

A granular portfolio is an investment portfolio that is very much diversified across a wide assortment of assets, ordinarily with a huge number of holdings. Since this type of portfolio contains a large number of positions in various asset classes or potentially sectors, it is considered to have a lower overall risk profile. Alternately, portfolios that have "low granularity" have less positions or contain profoundly connected assets. They are less diversified and have a higher overall risk profile.

How a Granular Portfolio Works

A granular portfolio can allude to a credit, currency, equity, bond, or mixed asset class portfolio. Exceptionally granular portfolios, sometimes alluded to as limitlessly granular, enhance the greater part of the unsystematic risk (individual security risk) out of the portfolio with the goal that it is presented to systemic risk just, which investors can't limit through diversification.

Advantages of a Granular Portfolio

While the primary advantage to an investor is the reduction of risk, different advantages of a granular portfolio incorporate the ability to redo a portfolio and to expand across numerous asset classes.

Reduces Risk

Having investments across numerous sectors and asset classes assists with diminishing a portfolio's overall risk. For instance, in the event that healthcare stocks are failing to meet expectations, a granular portfolio with exposure to different sectors — like technology, financials, and consumer goods — assists with offsetting those positions. Bonds can be added to a granular portfolio to turn out revenue when stocks go through range-bound periods.

Customization

Since granular portfolios incorporate numerous holdings, they can without much of a stretch be adjusted to meet the financial objectives of various investors. For example, an investor could have their asset allocations split between equities, bonds, and cash. At the point when the investor is youthful, 90% of the portfolio might be invested in equities, with 5% in bonds and 5% in cash. As the investor approaches retirement, they can undoubtedly change the portfolio to have more conservative allocations.

Asset Choice

A granular portfolio gives investors the flexibility to broaden across numerous asset classes as they see fit. For instance, if precious metal commodities, like gold and silver, are trending higher, an investor could add a few futures contracts to his portfolio to gain exposure to the move.

Disadvantages of a Granular Portfolio

Despite the fact that there are less disadvantages to a granular portfolio, they can be huge, especially during times of marketplace instability or downturns.

Windfall Gains

The diversified structure of a granular portfolio means that a large gain in a single investment negligibly affects overall returns. For example, a stock in an investor's portfolio might increase by 75%, yet that holding possibly accounts for a slight gain in the event that it addresses 5% of the portfolio's value.

Exposure

In a stable economic environment, a granular portfolio exploits uncorrelated asset classes and sectors offsetting each other to assist with lessening risk. These correlations might break down in a financial crisis to increase risk in fact.

For instance, during the global financial crisis somewhere in the range of 2008 and 2009, price moves in equities and commodities turned out to be unequivocally related, while bonds and equities became uncorrelated. Investors who hold a granular portfolio ought to consistently monitor changing correlations between asset classes to guarantee they don't overexpose themselves. Understanding this relationship between market correlation and volatility can assist investors with overseeing portfolio risk.

Features

• A granular portfolio has investments across numerous asset classes and sectors.
• Disadvantages of a granular portfolio incorporate the capability of losing out on windfall gains and the conceivable exposure to increased risk during market volatility.
• The primary advantage of a granular portfolio to an investor is the ability to reduce risk through diversification.
• Different advantages incorporate the ability to modify a portfolio of holdings to meet an investor's financial objectives and the flexibility to enhance across numerous asset classes.