“One of the basic rules is if you’re going to diversify yourself, you have to find things that don’t react to the same basic macro-economic environment. Over the past couple of years there have been a number of funds and fund concepts that have gone generically under the name ‘diversified growth’ where you’re combining several different types of growth assets in order to reduce the volatility of the portfolio somewhat and still participate in upwards movements.

“The problem is the name reveals itself – it’s diversified growth, these separate asset classes are all responding effectively to the same macro-economic characteristic of economic growth. It’s kind of like buying several different flavours of icecream.”
Stern says there is a growing interest in asset allocation as “a reversion to searching for better risk-return characteristics” from assets.

Investing on a multi-asset basis is one way of improving the risk-return environment within portfolios. Multi-asset portfolios attempt to invest for a positive outcome in lots of different environments, not just an environment where economic growth prevails. They also utilise the full capitalisation structure of organisations.

“One of the issues for Australian investors has been, given a lot of risk is in the Australian equity component of the portfolio, that a lot of that risk is related directly and indirectly to commodities via the resource exposure, and even the indirect effects of that back through into the domestic economy,” Doyle says. “Adding commodity exposure is doubling up on that risk. Even if you argue that because commodity prices have an impact on inflation, they’re a good inflation hedge, if you pay too much for them, it doesn’t matter how good an inflation hedge they are, you’re going to lose money.”

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