A modern approach to diversification

This article is part of
Guide to risk and return in multi-asset

Ben Seager-Scott, chief investment strategist at Tilney Group, says: “I think the key to diversification isn’t necessarily having ever more asset classes and different instruments, but rather trying to use offsetting factors to maximise the efficiency of your investment.”

He acknowledges that, traditionally, this has been through asset classes such as equities and fixed income, but he points out there are now a range of other strategies that multi-asset portfolios can employ. 

He continues: “It is important to understand the risk characteristics of different asset classes and strategies, ensuring that diversification changes actually have a meaningful impact on improving portfolio efficiency.”

Safe haven assets

This does not have to be at the expense of more traditional asset classes though, which still have their role to play, as Mr Coombs points out.

“Our approach to risk management can sometimes still lead us to a more ‘traditional’ looking asset allocation,” he notes. 

“For example, our portfolios currently look quite traditional as we have been adding to sovereign bonds, put options, and gold for ‘safe haven’ exposure. Factors such as the rapid progress in technology and artificial intelligence pose deflationary threats across the globe and sovereign bonds remain an effective way to combat this.”