Making Money with Diversification

Wrapped Up

  • The key to riding out current market conditions is diversifying your portfolio
  • Introducing new sources of returns to your portfolio is a good way of diversifying
  •  For example, investing into alternative assets, which are not correlated to the stock market
  • Why now? Recent research suggests that under current market conditions, the traditional 60/40 portfolio will not yield the same returns it has previously achieved over the last 50 years
  • At Gather we offer a wide range of distinctive Alternative Playlists that feature a dynamic selection of funds managed by BlackRock

Bear Markets. Inflation. Interest Rates hikes. Recession.

We’re a bit tired of the negativity so we thought we’d talk about the stuff that’s actually making money right now (or at least not losing any)!

So, what is working right now? Alternative Investments like real assets, commodities, infrastructure, real estate and some hedge fund strategies, generally have a low correlation to traditional markets and are performing well right now. The key to riding out these market conditions and perhaps protecting or even making money is diversifying your portfolio to include new sources of returns different than stocks and bonds i.e. Alternatives.

“Diversification is the only free lunch” – Harry Markowitz

Market conditions and the famous 60/40 balanced portfolios

If stocks and bonds have been the equivalent of superman over the last decade then inflation and interest rates are their ‘investment kryptonite’. The last 50 years have seen the traditional 60/40 split between equities and bonds perform very well but according to some research from BlackRock, Goldman Sachs, Man Group and other major houses, they do not expect similar returns over the next few years from these traditional portfolios.

“A core problem for investors is that 60/40 doesn’t look like it has much return potential,” – Peter van Dooijeweert (Head of multi-asset solutions, Man Group)

So, if Superman can’t help investors, Batman is the next best bet. Alternative Investments are generally un-related to market movements and might even be pro-inflationary, therefore can be an effective protection and thrive in such conditions. Real estate and infrastructure debt are often inflation adjusted, while commodities and energy benefit from inflation and rising prices and to a certain extend cause inflation themselves.  Some Hedge Fund strategies are performing well this year. They benefit from the market volatility and dispersion. For example managed future funds (Quant funds) like Winton, BlueTrend and Man Group’s AHL unit have benefited massively from persistent long term trends. Invesco, for example, recommends a new balanced allocation in a 50/30/20 portfolio, split between equities, bonds and alternatives. “This is the year that is reminding investors of the importance of diversification,” – Kristina Hooper, chief global market strategist at Invesco.





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