What does Proper Portfolio Diversification Look Like?
Updated: May 18, 2022
It’s a tricky question, because safe haven assets such as developed market government bonds are expensive, so owning them relies on them becoming even more expensive. Proper diversification we think is about spreading investment across cheap asset classes, namely certain equity markets, high yield and emerging market bonds, and so-called specialist assets that behave like neither equities nor bonds such as non-core REITs and renewable energy funds. In all these areas you can find sustainable cash flows and decent yields which to us means decent value.
Buying things cheaply won’t necessarily dampen volatility in the short term but what it will do is limit permanent loss of real capital in the longer term. It all depends how you define risk.
Published in Investment Week
The views expressed in this communication are those of Peter Elston at the time of writing and are subject to change without notice. They do not constitute investment advice and whilst all reasonable efforts have been used to ensure the accuracy of the information contained in this communication, the reliability, completeness or accuracy of the content cannot be guaranteed. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment.