One of the best ways of trying to limit risk in a portfolio is by investing in a range of different businesses. And there are a couple of UK shares that offer some instant diversification.
Investors can’t eliminate risk entirely in the stock market, but there are some things they can do to try and limit it. One of these is considering a portfolio that’s well-diversified.
Selling low
The worst thing for an investor is being forced to sell when prices are low. For example, the 2023 banking crisis was a really bad time for an investor to have to sell Barclays shares.
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The best way to try and avoid this is by owning a portfolio of shares unlikely to all be affected by the same events. That means finding businesses with different risk profiles.
BP, for example, was virtually unaffected by the banking crisis. The first quarter of 2023 was actually one of the best times to sell the stock in the last five years.
Investing in a range of businesses is key to trying to limit the risk of having to sell when prices are low. And a few UK shares can really help with this.
Halma
Halma‘s (LSE:HLMA) one example worthy of further research. The FTSE 100 company is a collection of almost 50 smaller businesses, so investors interested in the stock could get to own part of these different subsidiaries.
The firm’s operations are focused around life-saving technology. They operate in a range of industries including fire safety, medical devices, and water pollution.
Investors who own the stock therefore get some automatic portfolio diversification. And as the firm keeps adding more businesses to its empire, it becomes stronger and more profitable.
Of course, this can be risky as even the best investors can overpay for acquisitions. But it’s hard to dispute that Halma has an impressive record when it comes to making intelligent investments.
Judges Scientific
While I’m a big fan of Halma, there’s another company I like even better. Judges Scientific (LSE:JDG) owns a collection of businesses that make scientific instruments.
These include devices that test how materials burn, behave under pressure, and a lot more. And it sells into a diverse range of markets, from academic research to industrial settings.
This helps protect the firm from downturns in any specific industry. But there are risks, such as the fact its subsidiaries operate in niche sectors, which can mean limited scope for growth.
A high price-to-earnings (P/E) multiple means this is a serious consideration. The benefit of this type of business though, is that it can be very difficult to disrupt.
Diversification
I’m a big believer in diversification, but that doesn’t have to mean evaluating a huge number of stocks. Companies like Halma and Judges Scientific own a lot of businesses under one roof.
More importantly, they’re both very impressive when it comes to exciting growth prospects. So even without the diversification benefits, I think either’s worth a closer look for investors.
