Ah, diversification… This has to be one of the most overused words in investing. You'll hear almost every market commentator touting the benefits of diversification (including us Fools). We all know the dangers of being under-diversified, epitomised with that equally-overused phrase 'don't have all your eggs in one basket'. But is it possible to be too diversified?

What is 'diversification'?

Diversification in its essence refers to spreading out your capital among different investments to mitigate risk. It is certainly a theory that has merit. One of the founders of modern portfolio theory (a prominent theory of how markets operate that we Fools often disagree with), Harry Markowitz, famously called diversification "the only free lunch in finance". And to some extent that's true. It is possible to 'diversify' a portfolio in a way that boosts your potential returns without increasing the risk of losing your money.

The idea is that by spreading out your capital, you reduce the chances of a single event, whether that be relating to an individual company or an entire market (e.g. Australia), from decimating your portfolio. Take an investor who has all of their wealth in Sydney property. Well, that investor is highly exposed to a disruption in that one single market. If that investor sold a house or two and invested the profits in ASX shares, their diversification would increase. This is an example of when diversification is probably a wise and prudent thing to do.

But what about a pure portfolio of ASX shares?

Di-worse-ification

Well, I think some investors do get a little carried away with diversification. We Fools like to advocate that all active investors get to a point where they have 15-20 different and uncorrelated ASX shares for diversification purposes. We also think that adding a few international shares is a good idea as well, just in case the entire Australian economy is hit with some kind of black swan event.

But you could take it a lot further. ASX shares are just one asset class of many. There are also government bonds, corporate bonds, precious metals, property, cryptocurrencies and cash to consider. There's also a range of more eccentric investment options too, like collectables, fine wine, art.. .the list goes on.

And in the world of shares, there are also countless options. Every exchange-traded fund (ETF) provider on the market will tell you that buying their ETF is a good idea for diversification. Why stop at ASX and US shares? Why not get exposure to European shares with the iShares Europe ETF (ASX: IEU)? Or Asia with the Vanguard FTSE Asia ex-Japan Shares Index ETF (ASX: VAE)?. Or the 'Far East' with the iShares MSCI EAFE ETF (ASX: IVE)? You get the idea… Going down this path won't lead to a good long-term outcome in my view.

Foolish takeaway

There are literally thousands of ETF combinations you could have in your portfolio, but there does come a point when you're changing the oil in a rental car, so to speak. I don't think you really gain much benefit from holding a portfolio of 20 diversified companies against a portfolio of 1,000 companies, or a collection of ETFs covering every corner of the investing world. If you choose to invest passively, just one market-wide ETF does give you quite a lot of diversification. And if you actively invest, I think you can get as much balance as you need with a portfolio of 15-20 shares (perhaps with some international ones thrown in for good measure). So don't get too carried away with diversification, you might end up diversifying your profits if you do!

The post Is your ASX share portfolio too diversified? appeared first on The Motley Fool Australia.

Exchange-traded funds (ETFs) are no longer a one-size-fits-all investment vehicle. The first ETFs available in Australia were plain old index funds — tracking benchmarks like the S&P/ASX 200 Index (ASX: XJO ) without too much fanfare.

But these days (much like the app store), if there's a trend, asset class or industry to track, chances are there's an ETF for that.

But with a plethora of choice out there, which ETFs should we choose for our portfolios? Well, if you're looking to add some international exposure to your portfolio, I've found 2 exotic ETFs I think merit consideration.

iShares MSCI EAFE ETF (ASX: IVE)

Don't let this acronym-replete name dissuade you. IVE tracks a basket of shares from Europe, Australia and the Far East (EAFE). Most of the international investing that Aussies tend to participate in revolves around the United States. While this is not necessarily a bad thing, I do think that America has its own set of unique challenges right now. Considering this, a bit of international diversification might not go astray in our portfolios.

IVE has its largest exposure (26% of the portfolio) to Japan with shares like Toyota. But the United Kingdom (at 14%), France (at 10.5%), Switzerland (10.2%) and Germany (9%) also feature heavily. Our own ASX shares make up around 6.4% of this ETF. Apart from Toyota, other companies that feature in IVE's top 10 list include Nestle, Roche, Novartis, SAP and LVMH.

IVE has a management fee of 0.31% per annum, which I think is reasonable considering the geographical diversification it brings to the table.

ETFS Morningstar Global Technology ETF (ASX: TECH)

This tech-focused ETF (hence the ticker symbol) is one of my favourite exotic ETFs on the ASX. It aims to track a basket of tech-related companies that are selected by the reputable Morningstar group. It's dominated by US companies (with 85.5% of the portfolio), but also features Japan, Germany and France in its exposures. TECH's holdings are made up of both large and small tech companies. Microsoft is in the top 10, as is Fortinet, Splunk, ServiceNow and Intel.

Morningstar regularly updates and rebalances this index. Thus, you can have reasonable confidence that any company that stumbles or goes off the rails will be replaced with another up-and-comer. If you feel your portfolio doesn't have sufficient exposure to the global technology sector, then TECH is a great way to easily remedy this situation. This ETF has a management fee of 0.45% per annum, which isn't on the cheap side. However, since TECH has returned an average of 25.15% per annum over the past 3 years, personally I would consider this fee 'worth it'.

The post 2 exotic ETFs for your ASX portfolio appeared first on The Motley Fool Australia.

Exchange traded funds (or ETFs) can be a cheap and easy way to add some international spice into your portfolio. Although we Australians love the franking credits and big dividends that ASX shares like National Australia Bank Ltd (ASX: NAB) provide, it is prudent in my opinion to look outside our shores.

Here are 2 ASX ETFs that provide cheap, easy diversification in one stock.

Vanguard International Shares Index Fund (ASX: VGS)

This ETF is run by the Vanguard group, who are famous for their rock-bottom fees. VGS tracks the MSCI World ex-Australia index, which basically follows the largest companies in the world outside Australia. It currently has over 1,600 underlying holdings, so you can be assured of some serious diversification. Some of VGS's top holdings include Microsoft, Apple, Amazon, Nestle and Exxon Mobil. VGS is weighted 64% to the USA (reflecting that most of the largest companies are American) but also has exposure to the UK, Japan, France and Canada. This ETF charges a management fee of 0.18%, which is a pretty small price to pay for such broad investments.

iShares MSCI EAFE ETF (ASX: IVE)

This ETF is run by BlackRock, who is the largest asset management company in the world. IVE tracks a broad range of companies from Europe, Australia and the Far East (mainly Japan) – hence the EAFE name. If you are after a bit more of a balanced index sot so heavy on North American companies, IVE is a good alternative to VGS. IVE's current top holdings include Royal Dutch Shell, Toyota, HSBC Bank and Swiss healthcare giant Roche Holdings as well as our own Commonwealth Bank of Australia (ASX: CBA). IVE charges a management fee of 0.31%, also very cheap considering this exotic range of companies.

Foolish Takeaway

ETFs can be a very useful tool to give your portfolio some easy diversification away from ASX stocks in one share. Both VGS and IVE would fill this role very handily, while not charging you a fortune for doing so. If you are overweight on ASX shares, and looking for some international spice, both of these picks would be good options to have a look at in my opinion.

The post 2 cheap ASX ETFs for international diversification appeared first on The Motley Fool Australia.

The presence of short-sellers is a widely reported metric, with the most heavily short-sold companies sometimes experiencing drastic plunges in share price.

In our regular looks at the ASX's most shorted companies, I also come across companies with trifling amounts of short interest. Here are 10 of the least short-sold shares on the ASX:

Aspen Group Limited (ASX: APZ) – 1 share short-sold

Afterpay Touch Limited (ASX: APT) (AFTERPAY T FPO on Google Finance) – 999 shares short-sold

Class Ltd (ASX: CL1) – 1,083 shares short-sold

Dicker Data Ltd (ASX: DDR) – 1,989 shares short-sold

Integral Diagnostics Ltd (ASX: IDX) – 1 share short-sold

IVE Group Ltd (ASX: IGL) – 56 shares short-sold

Lovisa Holdings Ltd (ASX: LOV) – 1,400 shares short-sold

RXP Services Ltd (ASX: RXP) – 303 shares short-sold

Vanguard Australian Shares High Yield ETF (ASX: VHY) – 5 units short-sold

WAM Leaders Ltd (ASX: WLE) – 310 shares short-sold

This data is a few days old and is not necessarily correct, as it depends on sellers making reports to ASIC. The figures above are generally quite tiny, less than $1000 in many cases.

However, it is interesting to note that some companies that might have stronger short interest do not, while some unusual targets that you wouldn't expect to be short-sold, are. WAM Leaders and the Vanguard High Yield ETF could be targets for Australian economy bears, given that these companies hold meaningful amounts of bank and infrastructure shares.

It is also surprising to see that Lovisa doesn't have greater short interest, given the apparent low barriers to entry and low price of the company's products. I expect that Afterpay Touch could also see increasing interest from short-sellers over time, especially as more data is collected about the performance of borrowers using the Afterpay system.

The post The 10 least short-sold shares on the ASX appeared first on The Motley Fool Australia.