Rising market correlations push investors toward diversified strategies.
The global giant of the asset management field, BlackRock, expressed concern that the old-school investment technique 60/40 will become less effective at providing diversification, as the correlations among equities and bonds continue to increase in turbulent market conditions.
The investment portfolio strategy based on the 60/40 allocation model consists of allocating 60% of the capital to equities while the rest is allocated to bonds. BlackRock researchers claim that the present market conditions reveal a critical vulnerability related to the increasing similarity in behavior of both assets during times of turmoil.
Such high correlations between bonds and equities weaken the ability of one asset class to serve as protection against volatility in the other. This is why, according to the present situation with inflation and geopolitics, as well as changing monetary policies, the risk becomes higher for such investments.
BlackRock, on the other hand, advises its clients to reassess their approach towards the asset allocation formula. It has recommended that they need to focus on adding liquid alternative investments to the traditional portfolio since there are chances that these investments will offer diversification along with lower sensitivity to the regular market movements.
Some examples of these alternative investments include hedge funds and private markets, among others. With such investments in a portfolio, investors can remain well-prepared to handle difficult economic conditions.
Apart from including alternative investments in their portfolios, BlackRock has also advised its clients to have some allocation for gold as well in order to protect themselves against any sort of uncertainties. Gold has always been a good option for the time of economic crisis and high inflation.
Disclaimer
It is advised for readers to refer to our Terms and Conditions section located on our website prior to forming any views based on this report. This article uses investment perspectives obtained from reliable references and resources. The conditions in the market might have changed and the investment strategy used may also be different.
