The perfect storm of exceptionally low returns, increased risk levels and diminished diversification opportunities await all investors. The uncertainty is further exacerbated by the divergence of global monetary policies in the major economies of US, European Union and Japan.
How much should capital market assumptions change? Is there the need to increase the allocation to risky assets to compensate for lower returns? Conversely, how should investors put in place robust measures to manage their portfolios?
Is diversification still the only free lunch? If so, to what extent should portfolios embrace the diversity of esoteric and often complex opportunities? There is no end to the granularity of active opportunities, but battle-scarred investors from the GFC remain haunted by liquidity ‘wounds’ and correlation disappointments. Should portfolios stay simple, focused on the long term and naively hope to ride through the volatility wave?
