Our Portfolio Managers aim for a more optimal mix of assets to maximize return potential.
The point of diversification is to protect against the downside potential of any one area of the market. Traditional diversification models advise you to spread out your investments over a variety of asset classes, sectors and geographic areas. However, the typical traditional portfolio is made solely of stocks and bonds. What investors have realized of late, is that all stocks (and sometimes even bonds) tend to be highly correlated with each other, and as a result, sector and geographic diversification are not as effective as previously thought.
We view effective diversification, differently. We see true diversification achieved through correlation, (i.e. to what degree do prices of different investments move together, or relative to each other), as opposed to static asset classes.
We manage risk by building portfolios based on asset classes or investment strategies that have distinctly low correlation with each other, regardless of what asset allocation category they may fit into. As a result, it is possible to have a portfolio that has a high concentration of alternative investments, which is much more diversified than a traditional portfolio.