This particular portfolio on WhoTrades Live has hundreds of stocks, with 31% in e-mini S&P 500 futures. For reasons detailed more here, however, I explain why an all-stocks portfolio – or a portfolio concentrated in only one particular form of beta, in general – isn’t a particularly robust form of diversification because in bear markets almost all securities of similar characteristics (in terms of their environmental bias) go down in tandem. However, Everest Re ($RE) caught my eye not due to the stock itself but due to the nature of the business. Everest Re is a reinsurance company. Reinsurance is a notable sector in financial markets because catastrophe / “major event” insurance largely provides uncorrelated returns relative to the broader stock and bond markets. This means irrespective of the future direction of these markets, reinsurance diversification has the potential to yield positive returns. Reinsurance is very similar to structured and asset-backed finance. Insurance companies underwrite policies and have the option to sell these loans – removing them from their balance sheet – to outside parties to reduce risk while collecting a nominal transaction fee. These loans are typically securitized, with the principal and interest payments on these loans tranched into specific tiers reflecting different reward versus risk characteristics. Insurance companies often do the same by selling off different risk tiers to reinsurance companies. Catastrophe bonds provide the easiest entry into the reinsurance market as they have the lowest risk, lowest yield, and lowest expected returns. Companies and municipalities offer these and some are available to individual investors. Yields are generally in the 3%-5% range. Then there are of course the middle risk layers, which bring on greater risk but generally offer 5%+ yields when appropriately priced. Stocks of reinsurance companies don’t provide the same diversification benefit because those will tend to trend with the general market (+0.5 to +0.8 correlation). Reinsurers can be hard to evaluate when they go through long periods without some type of event that will produce a large spike in the number of claims. Hurricanes in Q3 2017 – e.g., Harvey, Maria, Irma – would expect to give a realistic understanding of how these events impacted reinsurance funds that may have been exposed to liabilities in geographies affected by these disasters. A reinsurance stock like $RE was down 21%-22%. $RGA was down 10%. The dispersion of drawdowns varies heavily. Some will be relatively flat while others might lose over half their value. In the latter cases, this might reflect lack of diversification and/or poor risk control and assessment. Firms like these may not last if they make it through even one major catastrophe. If a firm loses 50% of its market value, that means it needs to double its market capitalization just to get back to where it was previously. If it gains a respectable 7% per year, this mean it’ll take a decade. Smaller reinsurance funds may have an easier time generating alpha than larger reinsurance funds. This may come with the territory of having a larger asset base. But it can also reflect specialization, less competition – such as a regional focus, which might involve a particular type of expertise – access to deal flow that other reinsurance funds might not have, and/or an information advantage. Conclusion Reinsurance markets are one source of diversification with low correlation to broader stock and bond markets. To get this advantage, you have to go to the credit markets. Reinsurance equities can of course be viable as well, but will correlate heavily with the indices. Catastrophe bonds are one potential source to access this market, and rely less on interest rate moves like normal bonds but rather major events that may stress the financial situation of the reinsurance company or municipality. If you’re looking for more portfolio ideas, consider WhoTrades Live, where you can find thousands of portfolios and traders by filtering by portfolio yield, trades count, drawdown, and performance history.