Vanguard’s research found that local bias is associated with greater levels of concentration within an investor’s portfolio of individual stocks. Local bias also was associated with smaller, more levered, less liquid, and value-style stocks.
Does that mean investors should take action? For those who are comfortable with those positions, perhaps not. But for those who aren’t, perhaps a diversified mutual fund or exchange-traded fund with similar investment exposures could decrease portfolio concentration while maintaining a tilt toward smaller-cap value holdings.
The paper identified four different size-and-style exposures that offer substantially less concentration than did the sample’s individual stock portfolios.