Granular Portfolio

Reviewed by Annapoorna | Updated on Aug 27, 2020

What is Meant by Granular Portfolio?

An extensive and well-diversified portfolio with investments in a wide range of sectors is known as a granular portfolio. The number of holdings is usually less.

This form of the portfolio is considered to have a lower overall risk due to such diversification. Granular portfolios can typically be used with credit portfolios, as well as portfolios of equity, currency, and bonds.

Salient Features of Granular Portfolio

Diversification involves spreading one’s investment funds across a lot of different asset types. Thus, investors are less vulnerable to losing significant amounts of money at once. If some part of the market goes down, it invests only a small part of one’s portfolio there.

Portfolios with “weak granularity” have lesser positions or highly correlated assets. They are less stable and have an overall higher risk profile. A granular portfolio reflects the beautiful vision of a plan for diversification and not just to diversify the portfolio.

A granular portfolio may refer to a portfolio of loans, currencies, equities, bonds, or mixed asset groups. Highly granular portfolios, diversify most of the unsystematic risk (individual security risk) out of the portfolio so that it is exposed only to systemic risk, which investors can’t minimise through diversification.

Pros and Cons of choosing Granular Portfolio

The advantages are as follows:

Risk Reduction: Taking investments across rising industries and asset classes helps to reduce the overall risk of a portfolio. Bonds may be applied to a granular portfolio as stocks go through cycles of change. It helps in boosting the revenue too.

*Helps in Customisation: * Because granular portfolios comprise many holdings, they can easily be adjusted to meet many different investors’ financial objectives. As the investor approaches retirement, the portfolio can be easily adjusted to have more conservative allocations.

Choice of Asset: A granular portfolio gives investors the options to diversify as they see fit across multiple asset classes.

The disadvantages are as follows:

Unexpected Returns: A granular portfolio’s diversified structure means a significant gain in a single investment has minimal effect on overall returns.

*Exposure: * A granular portfolio takes advantage of uncorrelated asset classes and sectors, which offset each other in a stable economic environment to help reduce risk. Those correlations can break down to increase risk in a financial crisis.