The Benefits of Diversification?

Apropos of the announced acquisition by Russell Investments of fledgling ETF provider US One, here’s a little exercise to evaluate the product.

US One’s lone offering is called “One Fund” (ticker symbel ONEF), an ETF which holds a portfolio of other ETFs in order to provide investors with a globally diversified portfolio in a single holding. Their approach is passive and capitalization weighted indexing intended to capture 95% of the global equity market.

In it’s short existence – the fund has been trading since May 2010, how has the diversification benefited investors? The correlation between ONEF and it’s largest holding, Vanguard’s US large cap ETF (ticker symbol: VV), listed on the sponsor’s website as 48.73% as of this writing, is .988.

While the sample size is too small to make for a definitive conclusion, at this early stage the benefit of diversification is nearly non-existent. For what little diversification it does provide, the investor is paying an expense ratio of 0.51% as compared to 0.07% for the Vanguard fund. Is it worth the extra expense?


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