Diversification: Investing with a risk-first mindset
How to reduce overall portfolio risk while meeting investment needs
Diversification is all about reducing portfolio risk. The primary threat that diversification aims to combat is correlation: the movement in the same direction of asset prices. However, to diversify properly investors need a framework, as well as an understanding of cross-asset, cross-geographies and cross-investment styles allocations. The selection below aims to offer institutional investors a deep dive into effective diversification implementation.
For compliance reasons, this paper is only accessible in the United States
A framework designed for building a robust portfolio that delivers on investors' needs – be they capital growth, income generation or capital protection.
For compliance reasons, this paper is only accessible in the United States & Canada
Allocating to EM opportunities can be a great way to diversify one's own investments. EM assets tend to be less correlated with those in more developed economies.
Fixed income has traditionally been one of the most important asset classes for portfolio diversification. This paper examines fixed income valuation.
For compliance reasons, this paper is only accessible in the United States & Canada
Low volatility equities can be a great diversifier for investors with global portfolios. Measuring their performance using a benchmark may be, however, difficult.
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Multi-strategy portfolios need to be built upon notions such as diversification, risk management and risk targeting. Failure to do so can result in heavy losses.
Diversification reduces overall risk by mitigating the correlation among asset classes. However, hedging appropriately can also result in risk reduction.
The 60/40 portfolio has long been seen as the traditional diversified portfolio. However, in this context, correlation risk needs to be reassessed.
Using momentum strategies to diversify one's investments is not as straightforward as it seems. This paper provides a method of incorporating momentum strategies in a portfolio.
Correlation is not only a risk but also a tool to spot unique investment opportunities. Investors can use correlation to identify stocks that "move their own ways".
ABOUT THE AUTHOR
Andrew Perrins is a former Actuary and Asset Allocator. After qualifying as an Actuary, he worked for 15 years in investment management, serving as Director of Asset Allocation for Abbey Life and for Chase Manhattan, before setting out on a more entrepreneurial path.
To contact him,?email?[email protected]