Adviser-to-client template: Why diversification still matters

For financial advisers to use with clients.

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Dear Client, 

In any given year, different assets and different share markets can move in very different directions. This year has been a good reminder of why spreading your investments, also known as diversification, is so important.

As you can see below, while 2026 has seen U.S. share market deliver a negative return so far, many other markets around the world have performed extremely well. This mix of results is normal, and it highlights why relying too heavily on one market, asset or type of company can add unnecessary risk to a portfolio.

Source: Clearnomics, MSCI, Bloomberg, JP Morgan 

A large part of the recent ups and downs in the US market has come from a small group of very large and very expensive U.S. technology companies. These companies have had a huge influence on U.S market movements simply because they make up such a big portion of the U.S. market. This can sometimes even spill over to markets outside of the U.S., given how large and influential these stocks have become.

Your Morningstar portfolio has generally been less invested in these highly priced tech stocks. This isn’t because they don’t believe in their long‑term potential, but because they have been trading at very high valuations. When something is expensive, it often means lower future returns and higher risk of sharp price swings, which is what we have seen with these U.S. technology companies in recent times.

Periods like the one we’re seeing now show the benefit of a valuation‑driven approach to investing. This means investing more in areas that offer good long‑term value, and less in areas that look expensive. It’s a disciplined way of aiming to deliver steadier results over time, even when certain parts of the market are experiencing turbulence.

What do you need to do?

In short, nothing. A well-diversified, multi-asset portfolio that is anchored to investment fundamentals should help to smooth out some of the market volatility, and the team at Morningstar Investment Management have constructed your portfolio to do just that.

Of course, if you still wish to talk through how your portfolio is designed to weather turbulence, or have any other questions about your financial plan, I’m always happy to help. Please feel free to reach out at any time.

Until then – have a fantastic week ahead. 

Best,

Adviser

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