Diversification: Investing with a risk-first mindset

How to reduce overall portfolio risk while meeting investment needs

Diversification is all about reducing portfolio risk. The primary threat that diversification aims to combat is correlation: the movement in the same direction of asset prices. However, to diversify properly investors need a framework, as well as an understanding of cross-asset, cross-geographies and cross-investment styles allocations. The selection below aims to offer institutional investors a deep dive into effective diversification implementation.

Vanguard's Portfolio Construction Framework (Vanguard)

For compliance reasons, this paper is only accessible in the United States

A framework designed for building a robust portfolio that delivers on investors' needs – be they capital growth, income generation or capital protection.

Investors Are Underinvested in EM (BlackRock)

For compliance reasons, this paper is only accessible in the United States and Canada

Allocating to EM opportunities can be a great way to diversify one's own investments. EM assets tend to be less correlated with those in more developed economies.

The Big Mac on Fixed Income Valuation (MFS)

Fixed income has traditionally been one of the most important asset classes for portfolio diversification. This paper examines fixed income valuation.

An Appropriate Benchmark for Low Vol Equity Strategies? (PH&N Institutional)

For compliance reasons, this paper is only accessible in the United States and Canada

Low volatility equities can be a great diversifier for investors with global portfolios. Measuring their performance using a benchmark may be, however, difficult.

Building A Multi-strategy Portfolio (Man Group)

Multi-strategy portfolios need to be built upon notions such as diversification, risk management and risk targeting. Failure to do so can result in heavy losses.

Hedging vs Diversification: Cost Comparison (Investments & Wealth Institute)

Diversification reduces overall risk by mitigating the correlation among asset classes. However, hedging appropriately can also result in risk reduction.

Correlation: A hidden risk to your 60/40 portfolio (CAIA)

The 60/40 portfolio has long been seen as the traditional diversified portfolio. However, in this context, correlation risk needs to be reassessed.

Taming Momentum Crashes (2022)

Using momentum strategies to diversify one's investments is not as straightforward as it seems. This paper provides a method of incorporating momentum strategies in a portfolio.

Shining a Light on Correlation (Collidr)

Correlation is not only a risk but also a tool to spot unique investment opportunities. Investors can use correlation to identify stocks that "move their own ways".