These 27 stocks can give you a more diversified portfolio than the S&P 500 -- and that's a key advantage right now

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These 27 stocks can give you a more diversified portfolio than the S&P 500 — and that’s a key advantage right now

You probably already know that because of market-capitalization weighting, a broad index such as the S&P 500 SPX can be concentrated in a handful of stocks. Index funds are popular for good reasons — they tend to have low expenses and it is difficult for active managers to outperform them over the long term.

Weber co-manages the $293 million Natixis Vaughan Nelson Select Fund VNSAX , which carries a five-star rating from investment-researcher Morningstar, and has outperformed its benchmark, the S&P 500. Of course 2022 is something of an exception, with so many assets dropping in price at the same time. But over the long term, factor analysis can identify correlations and lead money managers to limit their investments in companies, sectors or industries whose prices tend to move together. This style has helped the Natixis Vaughan Nelson Select Fund outperform against its benchmark, Weber said.

Digging further, the factors also encompass sensitivity of investments to U.S. and other countries’ government bonds of various maturities, credit spreads between corporate and government bonds in developed countries, exchange rates, and measures of liquidity, price volatility and momentum. When asked for more examples of stocks in the fund that may provide excellent long-term returns, Weber mentioned Monolithic Power Systems Inc. MPWR , as a way to take advantage of the broad decline in semiconductor stocks this year.

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