Why Palisade Systematically Diversifies its Client Portfolios
Palisade systematically diversifies its client portfolios across all industries, capitalizations and geographies. Palisade’s goal is to capture the market return, which can only be achieved by owning the market.
In contrast, many investors and advisors attempt to beat the market by picking certain companies, industries or strategies to bet on, either directly or by investing in actively managed funds that do the same. Research has shown that, on average, this type of active management – attempting to pick outperforming investments – trails the comparable benchmark return significantly, especially after fees are considered:
S&P’s SPIVA Scorecard has concluded that relatively few active managers are able to outperform passive managers over any given time period, either short-term or long-term. For example, for the 15 years through Dec 2024, 89.5% of actively managed large-cap funds underperformed the S&P 500.
Morningstar’s Active/Passive Barometer concluded that actively-managed funds’ long-term record against their passive peers is quite bleak, with a mere 21% of active strategies beating their passive counterparts over the 10 years through June 2025.
The chart below shows the relative return of the eleven industry sectors of the US economy from 2010 to 2024. It illustrates the folly of betting on certain industries, underlining the fact that there is no one industry that reliably outperforms any other industry:
Image source: Novel Investor
Another common bias in advisor portfolios is an overweight to domestic markets and neglecting to diversify internationally. While domestic markets have outperformed international markets in recent years, there have been long periods of international outperformance, as shown below:
Image source: Hartford Funds
Palisade’s goal is not to try to anticipate whether domestic or international markets will outperform in the future, but rather diversify across both to capture the return of the global stock market and minimize the concentrated risk of any single geography. This reduces the overall volatility of our client portfolios.
“Don’t look for the needle in the haystack. Just buy the haystack!”
