Diversification requirement

A diversification requirement can be a principle or a number. Trustees in England and Wales must have regard to the need for diversification, so far as appropriate to the trust (Trustee Act 2000 s4). UK pension scheme assets must be properly diversified, avoiding heavy reliance on one asset, issuer or group (Investment Regulations 2005, reg 4).

Policies turn the principle into tests. Common forms are a minimum number of holdings or issuers, a cap on the largest positions combined, and per-issuer caps. Examples: “hold at least 20 different issuers”; “the ten largest holdings no more than 40%”.

Acclimetry’s minimum diversification template counts distinct holdings or issuers, or caps the combined weight of the largest N. Example: the two largest of four holdings, 300 and 250 of a 1,000 portfolio, weigh 55%, inside a 60% cap. Counts are unaffected by missing prices; weights are not.