Novus Overlap: A Better Measure of Diversification

The predominant technique that the investment industry relies upon to calculate uniqueness in managers is fatally flawed. Portfolio construction based on correlation of monthly returns has failed investors and left them searching for a better way to build diversified portfolios. Given the regulatory changes of the last few years, more data than ever are available to investors, and this data can empower them to take a different approach. In this paper, we propose a measure based on the portfolio holdings of managers: Novus Overlap.