Features
Why diversification is your best friend in today’s market
By Akshay Sardana, VP – Strategy & International Development, The Continental Group
In the world of investing, diversification is the only free lunch.
It’s becoming increasingly clear that diversification is not just a buzzword but a necessity from a de-risking standpoint. Whether you’re an individual investor trying to safeguard your savings or a financial institution managing large portfolios, spreading your investments across different asset classes, sectors, and geographies is crucial. We are navigating a phase marked by rising inflation, geopolitical tensions, and market volatility. Diversification is a crucial part of your financial safety net. It is just as important to think of how many different ways you can be invested, as it is to think of how long you will be invested.
Portfolios are often built primarily around time in the market; on face value, this is not a bad practice on its own. It is true that the likelihood of risk-adjusted gains goes up the longer you stay invested. But there are plenty of examples over the last five years which show that it should not be your only priority.
Remember the market uncertainty caused by the COVID-19 pandemic? While some sectors took significant hits, others, like technology, pharma, and commodities, saw substantial gains. Such disparities highlight the importance of a diversified portfolio. A large economic downturn doesn’t mean the potential for portfolio growth must fall.
Portfolio diversification is about spreading your investments to reduce exposure to any single risk. For financial institutions, diversification helps manage client portfolios more effectively. For individual investors, it safeguards savings against unexpected market downturns.
Strategies for effective diversification
Here is some data that points out why there is financial prudence in considering a diversified approach.
Tenure/Asset Class | Developed Market Equities(100%) | Developed Market(50%) + Indian Market Equities(50%) | Developed(40%) + India Equities(40%) with Gold (20%) |
1 Year | 16.66% | 23.21% | 22.60% |
3 Year | 6.73% | 9.57% | 9.53% |
5 Year | 11.60% | 12.71% | 12.28% |
10 Year | 9.80% | 10.62% | 9.62% |
The table above illustrates how diversification enables investors to reduce concentration risk by spreading their investments across various sectors, asset types, and regions to achieve better results over time.
Asset class diversification: Allocating investments across different asset classes – such as equities, bonds, real estate, commodities, is the most rudimentary form of diversification. Equities might offer growth, while bonds provide stability and income. Real estate can offer inflation protection, and commodities like gold can serve as a hedge against market volatility. This approach ensures that an investor’s portfolio is not overly dependent on the performance of a single asset class. In its most ideal form, this kind of diversification allows for convenient rebalancing – changing the ratio of your investments in different classes – based on market trends.
Individual asset diversification: This strategy involves investing in a variety of assets within the same class. For example, rather than putting all your money into one tech stock or one sector, you might invest in a mix of various sectors. This approach reduces the risk associated with any single company or sector’s performance. This is critical as companies within a sector tend to have correlated performance, whereas different sectors tend to perform differently. By spreading investments across sectors, investors can leverage the strengths of multiple opportunities while cushioning against unidirectional risk.
Geographical diversification: By spreading investments across different regions, investors can hedge against local economic downturns. Investing in both emerging and developed markets can balance risks and rewards. For instance, while emerging markets may offer higher growth potential, developed markets typically provide stability. Recent geopolitical conflicts have shown that even local events can have global repercussions – having your portfolio spread across multiple regions is the only way to guard against such events.
Alternative investments: Beyond conventional asset classes, alternative investments like hedge funds, private equity, private credit, and real estate offer unique advantages. These investments often come with flexible terms and the potential for high returns, though they usually require a longer commitment. For instance, hedge funds, managed by professional fund managers, aim to maximize returns by strategically deploying investments. Private equity and private credit investing can also provide substantial returns but typically involve higher risks in terms of both capital deployed as well as timeframe.
Implementing diversification into your portfolio
Managing volatility in investments is much easier than managing emotions while investing.
To get started, there are two critical ingredients to get right:
- Getting the right financial advisor
- Setting up the right asset mix
If it’s a personal portfolio, you can start by automating your investments under the guidance of your advisor to ensure consistent allocation into diverse assets. Automating investments helps mitigate the risk of emotional decision-making, ensuring that a portion of your income is regularly allocated towards diverse assets. Regularly review your portfolio – at least once a quarter – and rebalance as needed to align with your financial goals and risk tolerance.
For example, if you’re nearing retirement and looking for more stability, you might reduce your equity exposure and increase investments in dividend-paying stocks and real estate investment trusts (REITs), or even fixed-income assets. Dividend-paying stocks can provide a steady income stream, while REITs offer exposure to the real estate market with relatively lower volatility compared to direct real estate investments.
Of course, none of this is set in stone – it’s essential to stay informed about market trends and adjust your strategy accordingly, as the performance of different asset classes can vary significantly over time. Make sure your plans are dynamic and avoid generic thumb rules, because personal finance is not a one-size-fits-all sphere.
Institutional diversification has some principles that can come in handy. Institutions focus on strategic asset allocation tailored to client needs, leveraging their expertise to adjust portfolios based on market trends. One effective strategy is investing in thematic funds that target specific growth areas, such as technology, healthcare, or renewable energy. Typically these are sectors that show resilience and growth potential, making them attractive even during market volatility. By maintaining well-rounded and flexible portfolios, institutions better navigate economic shocks and sector-specific downturns.
Common pitfalls
Diversification is not without its challenges. Common pitfalls include over-diversification, where the portfolio becomes too complex to manage effectively, and under-diversification, which fails to provide adequate risk mitigation. Over-diversification can lead to diminished returns, as the positive performance of some investments may be offset by the poor performance of others. On the other hand, under-diversification exposes the portfolio to higher risks, as it relies too heavily on the performance of a few assets.
Remember, the key to successful diversification lies in regular reviews, strategic rebalancing, and staying focused on long-term objectives. It’s crucial to remember that financial markets are inherently volatile, and short-term fluctuations should not drive investment decisions. Think of diversification as not just a financial strategy but also a stress management tool for yourself – a sufficiently balanced portfolio will keep you from making hasty decisions. Professional guidance to set up such a balanced system can be especially beneficial during periods of economic uncertainty.
Features
Paving the Way for AI Success in Business
By Karim Azar, Regional Vice President – Middle East & Turkey, Cloudera
The digital landscape is evolving at an unprecedented pace, and at the heart of this evolution lies the transformative potential of artificial intelligence (AI). Across industries, AI is not merely a buzzword but a revolutionary force driving innovation, efficiency, and growth. Its impact extends beyond automation, touching every side of business operations and decision-making. It can revolutionize multiple sectors and fundamentally reshape the corporate industry.
Nonetheless, challenges arise with technological evolution, particularly in accessing and overseeing varied datasets across diverse environments. These challenges frequently act as obstacles to achieving successful AI implementation. In response to these challenges, the technology landscape is witnessing significant advancements in open data lakehouse technologies, providing a robust foundation for AI and analytics. Let’s delve into key technological developments and their advantages, focusing on the broader implications rather than specific products.
Unlocking Business Potential
AI has the potential to unleash new opportunities for businesses. McKinsey’s findings reveal that more than 62% of companies in the Gulf Cooperation Council (GCC) region currently utilize Generative AI in some operational aspect. The research underscores the substantial potential of AI to create tangible value in the GCC, with an estimated value of up to $150 billion.
This adoption trend is not without merit; statistics show that 83% of businesses adopting AI report substantial (30%) or moderate (53%) benefits. AI can address various challenges by providing predictive analytics and personalized customer experiences, enabling organizations to make faster and more accurate data-driven decisions.
Despite the obstacles in adopting AI, such as data management complexities and security concerns, offering air-gapped deployment for large language models (LLMs) is still a viable option. This feature boosts security, data privacy, and performance while also lowering customer operational expenses. However, overcoming these challenges requires more than just technological solutions. It demands a comprehensive approach that includes robust data governance frameworks, continuous employee training programs, and collaboration with regulatory bodies to ensure compliance with data protection laws.
AI Across Industries
AI is not a one-size-fits-all solution. It is applied differently across industries and business functions, including healthcare, finance, manufacturing, and retail. The potential uses of AI are vast, from boosting supply chain efficiency to transforming healthcare outcomes and customer service.
For example, in the healthcare industry, AI-powered predictive analytics can help doctors identify patients at high risk of developing certain diseases, allowing for early intervention and personalized treatment plans. AI algorithms can analyze market trends and financial customer behavior to recommend customized investment strategies. In manufacturing, AI-driven predictive maintenance can proactively anticipate equipment failures and schedule maintenance activities, minimizing downtime and reducing costs.
As businesses increasingly adopt AI, they invest in their organization’s future. By promoting innovation and agility, companies can leverage AI to maintain competitiveness in a digital era. Prioritizing data privacy and security helps build trust with customers and stakeholders, ensuring AI technologies’ responsible and ethical use.
AI is a significant transformation in how businesses function and innovate. Embracing AI opens up vast opportunities for organizations to reshape their operations, stimulate growth, and influence the future of business. While the journey may present challenges, the potential benefits are boundless for those willing to embrace the power of AI.
Features
Smart Cities and the Rise of Intelligent Transportation Systems: Exploring the Benefits and Risks of Vehicle Surveillance
By: Dr Ryad Soobhany, Associate Professor, School of Mathematical & Computer Sciences, Heriot-Watt University Dubai
Intelligent Transportation Systems (ITS) have emerged as a transformative solution in urban areas, tackling challenges such as high traffic and pollution. These systems, incorporating a network of static and mobile sensors, including cameras on buildings or vehicles/drones, embedded in the smart city infrastructure, are revolutionizing traffic management. By harnessing data from cameras, in-vehicle GPS systems, in-vehicle Near Field Communication (NFC), IoT devices, and Artificial Intelligence (AI), ITS enable the monitoring and tracking of vehicles for Intelligent Traffic Management Systems (ITMS) or Public Transportation Management Systems (PTMS).
While intelligent transportation systems offer significant benefits, it’s crucial to acknowledge the challenges and risks they pose. ITMS provides real-time monitoring of traffic on roads and at junctions, while PTMS focus on managing transportation fleet and passenger information services. Emergency Response Management Systems (ERMS) primarily monitor the emergency responders of the smart city. The use of intelligent vehicle surveillance systems improves traffic management, public safety, and urban planning, but it also raises concerns about the data privacy and security of users and infrastructure, a risk that must be carefully managed.
Benefits
There are several benefits from the implementation of vehicle surveillance systems in urban areas and the most obvious one is a better vehicle traffic flow by using ITMS. Cameras placed strategically across the city monitor traffic to identify congested areas and road traffic incidents (e.g. accidents). Implementing dynamic traffic lights systems at junctions and temporary speed limits can improve traffic flow. Using AI, predictive traffic routing forecasts traffic bottlenecks and suggests alternative routing. The use of PTMS leads to enhanced scheduling of public transportation; for example, the arrival/departure of trains/metro at the station is synchronized to feeder buses or taxis being stationed outside the station. There is an improvement in customer satisfaction and journey planning with real-time updates for public transport. Traffic flow is also improved by monitoring of cycle and pedestrian lanes, where safer cycle lanes will encourage road users to adopt cycling in certain urban areas adapted for cycling.
There is an overall improvement in public safety by better traffic management, with better response time to emergency situations by the ERMS, such as ambulances. LPR/ANPR (Licence Plate Recognition/Automatic Number Plate Recognition systems and GPS tracking systems in cars allow the monitoring of vehicles while they are located withing the bounds of the smart city. Stolen or wanted vehicles can be detected and followed through the city. The use of surveillance cameras, LPR/ANPR systems and GPS tracking can improve identification of criminal activities, which should enhance the response of law enforcement. Under-Vehicle Surveillance Systems (UVSS), which are cameras placed at strategic places on roads in the city take pictures or videos of the underside of vehicles to check the chassis for stolen cars. UVSS can also be used to detect contraband at ports or entry/exit points in smart cities.
The use of LPR/ANPR systems ease the management of Low Emission zones, which are areas where low emission vehicles (e.g. electric or hybrid vehicles) can circulate without charges and vehicles with higher emission rates have to pay an hourly or daily charge. The implementation of Low Emission zones can bring environmental benefits. The improved traffic flow in the urban areas can also lead to environmental benefits with less emissions in traffic jams and long traffic queues at junctions. Apart from environmental benefits, there are economic benefits linked to better health and overall happiness of citizens and visitors.
Risks
Several risks are associated with the amount of data collected from the vehicle surveillance systems. The main concern is the privacy of the smart city’s car drivers and car owners. Vehicles and their drivers are tracked everywhere they travel around the city and the speed they travel. This can lead to tracking drivers and without proper legal frameworks, the data collected can be used to encroach on the users’ privacy. The large amount of collected and stored data can be quite attractive to cyber criminals and might lead to cyber-attacks. Any data breach from these attacks might expose the personal information of drivers and their vehicles. Cyber-criminals can target the surveillance systems, for example hacking the intelligent dynamic traffic speed system and changing the traffic speed around the city.
Having video surveillance around the urban areas recording the public can lead to ethical issues. Most of the time, drivers might not have provided informed consent to participate in the vehicle surveillance systems. The lack of consent from users can lead to non-compliance with regulatory bodies and can result in legal challenges from user groups. Users need to be made aware that they are entering a vehicle surveillance zone and their data might be recorded. Vehicle surveillance systems can be used to discriminate against certain sections of the community, for example, young drivers might be unfairly targeted by the vehicle surveillance systems because they allegedly drive fast and dangerously, which allegedly cause accidents. Any cyber security attack or data intrusion can lead to users losing trust in the vehicle surveillance system.
The use of vehicle surveillance systems can benefit smart cities and enhance the quality of life of residents and visitors, but the authorities must respect the personal privacy of the public by ensuring that data are collected and processed ethically and guarded against any cyber-attack. Security policies and mitigation plans are primordial for vehicle surveillance systems.
Features
Enabling MEA eGovernment Entities to Enhance Experiences while Cutting Costs
By Uday Shankar Kizhepat, Vice President and General Manager- Middle East and Africa Region, WSO2
We live digitally. Much of our professional work is digital, as is much of our leisure time. Our commercial activity – shopping, service subscription, banking, and more – is digital. And our government is digital. No doubt governance itself requires the wisdom of individuals. But the transactional part – filing, requesting, registering, licensing, and so on – is digital. Governments in the Middle East and Africa (MEA) know they have an opportunity, with today’s technologies, to streamline transactional government functions while cutting costs.
One way to do this is to introduce digital identities. By allowing each citizen to be recognized by their “bytes essence,” public authorities open the door to transformative programs that use these trusted online personas to get things done reliably and rapidly. Many regional nations are acknowledging the potential of digital ID systems and have cultivated track records for themselves in areas such as boosted citizen engagement and enhanced accuracy of outcomes.
Digital IDs offer a practical means to ensure useability when new e-government services come online. Identity verification, service accessibility, and data protection are three major, long-standing challenges encountered by regional governments on their digital transformation journeys. The digital ID solves all of them. It offers an elegant solution to the verification issue, obviously, but its simplicity enhances accessibility, and its security features protect data.
The ’guarantee’
The digital identity may look straightforward, but its elegance is built on a toolbox of advanced technologies such as biometrics, encryption, and blockchain. These building blocks come together to give a guarantee of authenticity when an individual presents their credentials to an online gatekeeper. And we should not use the word “guarantee” lightly. It lies at the core of the viability of any authentication system offered by a government. When waved through the door, verified users can access tax history and health records. They can pay bills or register with a government agency. If verification is erroneous, a host of problems can arise.
The digital ID is a holistic, citizen-centric approach that strikes a balance between security and performance and yet does not compromise either. It eliminates bureaucratic bottlenecks and elevates the citizen experience without the public-sector agency ever relinquishing control of any part of the process. But how? How do digital IDs allow government services to operate at peak efficiency and grant seamless access to every citizen while not faltering when it comes to risk management? How do responsive, always-on services guarantee privacy and security? Well, the answer comes full circle, back to digital transformation.
Governments in the Arab Gulf region mention digital transformation frequently in published guidelines that map the way to economic diversification. These same guidelines apply to the government itself, which must set about transforming systems, processes, and functions to prepare for digital IDs and the world they promise – one in which a digital service provider can offer both seamless access and security. Complexities come from the scale and interconnectedness of operations, and the need for every shred of data, every machine-to-machine process, and every user session to be secure. Regulatory obligations must be juggled with budgetary constraints while technology leaders play intermediary to vying stakeholder factions within the organisation. It is easy to see how challenging it might be to maintain interoperability and data-sharing in such a fraught environment.
Of course, none of this will deter government organisations in the MEA region. They know what the hurdles are, but they also know what is to be gained – smoother services that cost less to provide while engendering greater citizen trust and in fact are leading the way in some of these digital initiatives. Remember, regional governments also know that the expectations of their citizens have, in a very real sense, undergone a digital transformation of their own.
Success stories
If we cast our eyes around the region, we can see digital ID-centric transformation in action already. Some government organisations in the Middle East have introduced biometric facial recognition as part of digital identity phase-ins and are using the system for secure digital document storage. Also in current use are systems that allow single, mobile-based logins. In these countries, the government’s identity access management (IAM) system undergoes a sweeping overhaul that allows the unification of credentials data to provide secure digital identity.
In the Asian subcontinent, we find a government that directed its telecoms ministry to build a national information exchange layer using an API. Strict identity management was rolled out as part of this ambitious project. With digital identity in place, the government can enable slicker collaboration between its departments and enhanced efficiency in outputs. It can do all this while optimising data access and consumption, which empowers analysts to deliver more actionable insights to stakeholders across agencies and ministries.
In Africa, one country showed its peers how an integrated identity and access management solution can be used for risk-based authentication, single sign-on, multi factor authentication, and user self-service. The solution was designed to minimise the risk of identity theft, but it was also (through single sign-on) able to reduce complexity when onboarding and offboarding users.
Conflict resolved
If digital solutions are the future of government, then digital identity is the future of public-sector cybersecurity and risk management. Governments in the region have been trying for years now to transform service delivery and engender citizen trust and engagement, but security has always been in conflict with agility. Having leveraged digital identity, authorities rid themselves of the downsides and reap rewards such as those described here. These regional successes underscore not only the profound impact digital transformation can have on society, but the indispensable role digital identity will play in delivering those efficiencies in a way that promotes trust.
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