The New Diversification: Open Your Eyes to Alternatives
April 30, 2013 | Topics: Alternatives
Over the last several years, many investors have discovered to their unfortunate surprise that their portfolios were not nearly as protected from downside risk as they thought and that their traditional notion of "diversification" failed their expectations.
As part of our efforts to provide investors with perspective on how to implement what BlackRock terms "The New Diversification," we recently sat down for a discussion with Professor Christopher Geczy, Academic Director of the Wharton Wealth Management Initiative and an Adjunct Associate Professor of Finance at The Wharton School. Highlights include:
- Modern Portfolio Theory did not fail during the credit crisis—portfolio construction did. Many investors did not have exposure to enough different asset classes
- Investors should consider incorporating a much wider range of strategies and assets as part of their core investment strategy
- The notion of "alternative" investing is often misunderstood. Gaining access to investments that tend to behave differently is an approach that almost everyone should employ, and many alternative strategies are now available to a broad range of individuals
Related by Topic: Alternatives
The investment environment has undergone massive changes in the past few decades, but the biggest impact is the radical increase in the availability of information for investment decision making. It's time for new investment processes and tools.
Jeff Shen & Rodolfo Martell
The case for investing in emerging markets in compelling, but recent performance challenges can make the positives easy to overlook. Jeff Shen and Rodolfo Martell introduce an approach that seeks to balance the risks and rewards inherent in EM investing.
Weekly Advisor Tip
Are your clients invested in alternatives? New BlackRock investor research provides key insights on how investors are thinking about alternative investments today.
Mark Howard-Johnson & Sherry Rexroad
Mark Howard-Johnson and Sherry Rexroad recommend REITs for potential returns and dividend income, as well as a dose of diversification.
Chart of the Week
A diversified, tactically managed, multi-asset portfolio can result in better risk/return characteristics and improved inflation protection through various market cycles.
Michael Fredericks & Phil Green
Inflation can't be combatted in the rear-view mirror. Phil Green and Michael Fredericks recommend a multi-asset approach for incorporating inflation protection and long-term growth potential into a portfolio.
96%: Advisors who say their typical client has alternative investments in their portfolio
Alternative investments are often misunderstood. Here we address some of the common myths associated with alternative investing and discuss how alternatives can be an integral part of nearly every investor's portfolio.
Private equity can provide increased diversification and attractive performance on both a risk-adjusted and an absolute basis. Learn more about the compelling investment case for private equity.
Traditional diversification strategies have disappointed lately. Learn how alternatives can be an attractive diversifier through their lower correlation to stocks and negative correlation to bonds.
Market inefficiencies exist in all markets and they can present savvy investors with more opportunity and enhanced return. Learn how a long/short strategy can help you take advantage of market inefficiencies.
Learn how adding a long/short strategy to a fixed income portfolio can help you manage your interest rate risk, potentially limiting the losses resulting from rates moving upward.
Alternative investments today come in a variety of packages, span a range of strategies and are available to nearly all investors. The information here is designed to help you weigh some important factors when selecting individual investments.
The past few years have seen increased volatility in the financial markets. Learn how alternatives can help investors decrease their reliance on traditional market returns and potentially lessen their overall portfolio risk.
Due to their versatility and flexibility, hedge funds can bring diversification to a portfolio that is hard to find elsewhere. However, choosing the right investment manager is very critical.
Our view on EMs? In a nutshell, we like 'em. Read more here.
Learn about a new approach to portfolio construction and how "alternative" investments can play a larger role for individual investors.
Stock market volatility since the global credit crisis has scared many investors away, leaving some struggling to generate growth and returns. But we believe there is a way to be invested in stocks that can help mitigate volatility.
Josh Tarnow, Portfolio Manager with the Leveraged Finance Portfolio Team, discusses opportunities for long/short strategies in the credit markets following the US election.
Josh Tarnow & Michael Phelps
With investors challenged to uncover fixed income solutions that provide return, diversification and stability, we spoke with BlackRock fixed income experts Josh Tarnow and Michael Phelps about the benefits of an allocation to fixed income credit.
Investors should consider the investment objectives, risks, charges and expenses of any fund carefully before investing. The funds' prospectuses and, if available, the summary prospectuses contain this and other information about the funds, and are available, along with information on other BlackRock funds by calling 800-882-0052. The prospectus and, if available, the summary prospectuses should be read carefully before investing.
The opinions presented are those of Professor Christopher Geczy as of September 2011, are not necessarily those of BlackRock or The Wharton School, and may change as subsequent conditions vary. Individual portfolio managers for BlackRock may have opinions and/or make investment decisions that, in certain respects, may not be consistent with the information contained in this report. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance does not guarantee future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.
No investment is risk free. International investing involves additional risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. The two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments. Investments in commodities may entail significant risks and can be significantly affected by events such as variations in the commodities markets, weather, disease, embargoes, international, political and economic developments, the success of exploration projects, tax and other government regulations, as well as other factors. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. BLACKROCK is a registered trademark of BlackRock, Inc. All other trademarks are the property of their respective owners.
Prepared by BlackRock Investments, LLC, member FINRA.