But the global financial crisis has highlighted what may have been forgotten, that higher returns come with higher risk. Some investors may review a decrease in the allocation to equities as a potential decrease in returns. But Zink says this can be achieved through leveraging the bond portfolio, or, if there is a fear of leverage, investing in longer duration bonds. “Basically all asset classes have roughly similar risk/return ratio, for 1 per cent risk all asset classes return between 20 and 30 basis points so that the risk/return ratio is between 0.25 and 0.3 per cent. People chase equities because they generate higher returns, but the fact it also has higher risk is ignored,” he says.

“The notion is that to increase the risk allocated to an asset class then you can increase return as well – you can still run a more diversified portfolio and get return.” He says analysis has shown if you leverage a normal bond index 2.5 times, using futures contracts, it will return the same as equities over the period from 1970 to now, with a little bit less risk (although that may time frame sensitive). “You don’t have to chase equities to generate returns. Using leverage in a prudent way, you can equalise the risk of the asset classes and unlock the power of diversification.

There is a general thought that ‘leverage is bad’, I’m not sure that’s true, it is misunderstood,” he says. “Leverage is a risk-adjustment vehicle, the problems are when leverage is used to take too much risk, but leverage of itself is not a high risk.” Zink says there are other methods of increasing risk, and so return, if investors are uncomfortable with leverage. “In the case of bonds you can move to a longer duration index, such as 10+ years, you’re increasing risk and capturing a larger portion of return,” he says.

“The logic behind this way of allocating assets is quite compelling and whatever risk I take this asset allocation is a far more efficient use of risk than what’s done today, which is return chasing by investing in equities.” Zink also points out that, by investing in equities, institutions are investing in leverage, as all companies are leveraged, which is why returns are high. He says the principles for building a more resilient portfolio include: allocating risk not capital because risk drives returns; building an allocation that is resilient to all economic environments; sizing exposures to target desired return and risk, and maintaining a liquidity buffer for contingencies. The Bridgewater All Weather fund returned 32.9 per cent in the year to February, and 7.6 per cent for the past 10 years.