Correlation and diversification

Portfolio diversification and exposure to assets that are as uncorrelated as possible is difficult when rates are on a knife-edge, but differentiated strategies for both equities and fixed income can still help manage risk for better return outcomes, whatever happens next according to analysts.

Speaking on a panel at The Inside Network’s inaugural Investment Leaders Forum held recently in Queenstown, New Zealand, Hugh Selby-Smith, co-chief investment officer at Talaria discussed ways to add long-term diversification benefits to traditional and benchmark-hugging approaches.

“A strategy’s return is far less important than the investor’s exposure to that return at the right time,” said Hugh, who noted that historically low correlation, high portfolio concentration and narrow leadership from fund managers are creating interesting opportunities. “It’s not about the best-performing strategy – it’s about your clients being in the strategy when it performs. And they’re really two different things.”

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