Diversification in Investment: The Geopolitical One

To any savvy investor 'Diversification' of investment is the key to success.
This diversification should be based on sector, level of market capital for
stocks (large, medium or small) as well as geopolitical issues. With the 1st
quarter of 2005 in the books, the results show another mediocre period for
US stocks. With oil prices approaching $3 per gallon, all three major
indices tiptoed between green and red for the quarter.

But in the end, the Dow lost 3.2%, the NASDAQ shed an ugly 8.5% and
the S&P500 fell 3.3%. However, Lipper reports that international small
and mid-cap mutual funds performed stoutly during the 1st quarter.
Funds focused on high growth gained 3.1% for the period, while the more
conservative value-based funds advanced 2%.

Leading the successful (in this quarter) list of international funds were
1. Third Millennium Russia, with a solid 10% jump
2. AIM European Small Company Class A, posting a 9.3% gain
3. iShares MSCI South Korea Index, with an 8.9% advance.

Russia is one of the world’s top exporters of commodities, with very strong
positions in oil, gas and steel. So, we guess the profitable runs of funds
aimed at this country may continue for some time to come. One of the
main reasons behind the solid gain for the AIM European Small Company
Class A fund was the addition of the 10 nations, mostly from Eastern
Europe, joining the European Union in May 2004. Economy of these
troubled nations benefitted a lot from regional integration. The Trading
Index of 25 companies in Czech Republic, Poland and Hungary jumped
over 8% during the first quarter, with the average European stock mutual
fund rising only 2.5%.

Emerging markets seem to be the right destination for investment capital.
This includes China and India in the lead and followed by Singapore,
Malaysia, Taiwan and South Korea. With Brazil and Argentina enjoying
healthy economic rebounds and a bull market in commodities, investment
in Latin America may reap good profit in near future and even in long term.

So, "Diversification - the geopolitical one" is the mantra of the present
time. We need to look beyond our borders to reap the harvest of the new
world whose borders have been partially demolished by the internet and
communication.