Avoiding Single Stock Volatility

Roger Nusbaum submits: Earlier this week I swapped out of BP PLC (BP) and into WisdomTree International Energy Fund (DKA). This was something I had been thinking about doing for a couple of weeks. BP has been struggling for several reasons. I think for the short term, 6-9 months, BP may not be able to outperform the sector.

If this turns out to be correct, taking the singe stock risk is not ideal. If this turns out to be incorrect and BP goes up a lot I would expect DKA to benefit as BP is weighted at 9% of the fund.

To be clear I expect the two to correlate very closely. If things get worse for BP, my clients will miss a portio of that lag.