Why You Should Own a Really Diversified Portfolio for 2012

BOSTON ( TheStreet) -- Americans have pulled almost $100 billion from equity mutual funds this year and put money in bonds and cash accounts to escape one of the most frightening years for investing.

Some fund managers, meanwhile, are shadowing their benchmark indices, hoping to hold on to their jobs amid record volatility in the stock market. And it seems like every talking head is pushing large-cap dividend shares for safety.

Not Sam Dedio.

"I'm paid to invest in the best stocks," says Dedio, head of U.S. equities at Artio Global Management. "We have vehicles for people who want to be exposed to equities. If they want to be exposed, they pay us to be exposed to equities without market timing. I have a very strong opinion on that. I don't believe in holding a lot of cash. If you don't want to be invested in the equity fund, you'll redeem your shares."

Dedio heads up several of Artio's investing strategies, including the Artio U.S. Multi-Cap Fund ( JMLAX), the Artio U.S. Small-Cap Fund ( JSCAX) and the Artio U.S. Micro-Cap Fund ( JMCAX).

Dedio and his team have had good success, with annualized returns for the funds ranging from 2.6% and 6.3% since all four funds' inception in July 2006. Most investors aren't committed to owning a true diversified portfolio, which has helped fuel his success, the manager says.

"You have to be comfortable in your own skin with those principles," Dedio says. "When things go against you, you can't overreact and get involved in the dangerous game of market timing. I'd rather be diversified across sectors. You want to own companies of all sizes. We don't like to make a big bet on size."

With the European debt crisis still raging and questions swirling about how equities will react to an eventual bailout, investors who haven't cashed out of stocks have been tempted to time the market. That's a mistake, Dedio says.

"It's a slow-motion, knife-catching exercise," he says. "If it's that easy, why aren't more people outperforming over the long haul? That's consistent with the short-term investment philosophy. Part of risk management is saying, we're in a tough period, so we roll up our sleeves and do our best work to come up with stocks that are undervalued or misunderstood."

While he advises investors to consider all market values, Dedio says many avoid microcaps because of heightened volatility. According to the Center for Research in Security Prices, microcaps outperform small caps and large-caps stocks over time, although returns deviate by wider degrees.

Dedio offers up 10 stocks across different market caps that are owned in his funds, which are detailed below and on the following pages.


Las Vegas Sands ( LVS)

Company Profile: Las Vegas Sands is a developer of casino and entertainment resorts. The company has properties on the Las Vegas Strip as well as Macau.

Share Price: $43.12 (Dec. 8)

2011 Return: minus 6.2%

Market Cap: $31.9 billion

Dedio's Take: Because of Las Vegas Sands' exposure to China through its gaming operations in Macau, Dedio says this stock pick is a demographics play. He points out that the company's non-U.S. revenue outpaces the revenue generated from the Vegas properties.

When you look at their real-estate exposure -- where they have properties and where their gaming revenue is coming from -- there is an emergence of a middle class in China," Dedio says. "I really do believe that a population greater than the population of the entire U.S. will become the middle class in China over the next six or eight years."

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