Diversification fortifies port in a storm - Nick Stewart

Give well-conceived diversification strategies the time they need to bear fruit, writes Nick Stewart.

Opinion

Nick Stewart is a financial adviser and CEO at Stewart Group.

Proper diversification has become essential to protect you from today’s increasingly volatile global landscape.

Global markets don’t all go the same way at the same time; a savvy investor knows this and uses it to their advantage.

Diversification is often called the only ‘free lunch’ you get with investment – it’s a way to reduce risk, without necessarily sacrificing returns.

As legendary investor Sir John Templeton once said: “The only investors who shouldn’t diversify are those who are right 100% of the time”.

The rest of us mere mortals are therefore not exempt.

Think of it this way: In a storm, would you rather have all your gold on one ship, or do as the mariners of old did and spread it out to minimise any potential loss?

More of your assets will make it back to port with a diversified approach – and when the skies clear, you are then in the right position to make the most out of the now-favourable conditions.

A globally diversified portfolio experiences less volatility than one concentrated in a single country.

We see this proven over and over again. For example, during Covid-19, certain regions faced severe lockdowns while others remained operational.

A dollar invested in the S&P 500 in May 2020 would have grown to approximately $2.10 by May 2025. This significantly outpaces the S&P/NZX 50’s growth of just $1.35 over the same period.

Let’s use an example even closer to home. Napier Port, which announced excellent financial results recently, provides a compelling local example of diversification’s challenges and rewards.

When the port listed on the NZX in August 2019 at $2.60 per share, early investors saw immediate gains with the stock reaching almost $3 shortly after listing and peaking at $4.25 in December 2019.

Upon listing, the port gained four significant iwi investors and more than 7500 local investors (5000 of whom were entirely new to investing).

A whopping 97% of Napier Port’s people participated through the Fair Share employee scheme. And 55% overall is owned by the ratepayers of Hawke’s Bay in the form of the Hawke’s Bay Regional Investment Company – that’s a lot of locals to get excited about peak prices.

Then came an extended drought for shareholders.

The stock languished for nearly five and a half years, falling as low as $2.15 in October 2023 following Cyclone Gabrielle’s devastating impact. Many early investors who bought during the IPO or at the previous high found themselves underwater for years – a long time between drinks indeed.

The port’s May 2025 results – and the subsequent stock price jump to its highest level in many years – vindicates the port’s long-term diversification strategy.

1. Revenue stream diversification: Beyond traditional cargo handling, the port expanded into cruise tourism, contributing $9.1 million in revenue and creating a buffer against freight volume fluctuations.

2. Infrastructure investment: The completion of Te Whiti Wharf (6 Wharf) in 2022 enabled the port to handle larger vessels and diversify its service offerings.

3. Crisis resilience: When Cyclone Gabrielle struck in 2023, the port’s operations were significantly affected. However, its diversified cargo base allowed for a faster recovery than would have been possible with a more concentrated business model.

What can investors learn from this?

Diversification is key to long-term success, because it helps to offset risk. When it comes to your investment portfolio – much like the port, you need to consider building your strategy up over different areas: Geographically, over asset classes, and over sectors.

Geographic diversification spreads your investments out across different countries and regions. This is doubly beneficial; you avoid being unduly affected by local downturns, and you can capture growth in other markets.

From 2020-2025, New Zealand investors who concentrated their entire portfolio in domestic stocks experienced significantly lower returns compared to those who diversified internationally.

The NZX 50 delivered an 11.3% return over this five-year period, while international markets substantially outperformed. Japan’s Nikkei 225 generated a 49.4% return, the United States S&P 500 achieved 123%, and the Nasdaq delivered 152.2%.

All figures are expressed in New Zealand dollar terms, highlighting the opportunity cost of maintaining a purely domestic investment strategy during this period.

Asset class diversification balances your portfolio across stocks, bonds and other investments. Historically, bonds often prove an inverse relationship to stocks – during the 2022 market downturn, those with bond allocations experienced less severe portfolio declines.

Sector diversification means investing across multiple industries to avoid concentration risk. We never know which one will spike next – for example, energy stocks that struggled in 2020 became top performers in 2022-23 as inflation surged.

Perhaps the most important diversification strategy is having a qualified fiduciary financial adviser who acts as a steady hand on the tiller when storms hit the financial markets, combined with the patience to stay the course.

The value of a steady hand in the storm

Recent years have demonstrated that ‘once in a lifetime’ events are becoming increasingly common.

We’ve had global pandemic shutting down economies worldwide, supply chain disruptions lasting not months but years, regional conflicts affecting global energy markets, and unprecedented weather events like Cyclone Gabrielle devastating entire regions.

In this environment, diversification is no longer just about optimising returns. It’s about survival.

When markets turn turbulent, human psychology often drives investors towards precisely the wrong decisions … like selling in panic or abandoning diversification principles.

A skilled adviser helps ensure your investment vessel remains seaworthy and on course even when gale-force market winds are blowing, preventing you from abandoning promising investments during the inevitable periods of underperformance.

Just as a seasoned captain navigates treacherous waters by preparing well before the storm, a fiduciary adviser helps you build a resilient portfolio calibrated to your specific circumstances.

Then, when rough conditions emerge, they provide the objective guidance needed to stay the course rather than making reactive changes that might lock in temporary losses.

The Napier Port investor experience demonstrates that diversification strategies may take years to deliver their full benefits.

Investors who sold during the extended period of lacklustre performance missed substantial gains. Those who remained patient, particularly with the guidance of a trusted adviser, have finally been rewarded.

The lesson is a simple one, but one often overlooked: Don’t put all your eggs in one basket, and give well-conceived diversification strategies the time they need to bear fruit.