For active managers, such solid corporate fundamentals and continuing volatility present great opportunities. Accordingly, many predict that the first signs of real progress on the sovereign debt issue will see equities bouncing back with a vengeance.

In summary, the report indicates that recent market volatility has shown that the three conventional investment assumptions (risk generates return; hedged portfolios give better returns than unhedged ones; and diversification is a free lunch) no longer hold true.

The new wisdom is that nothing is an opportunity until we know its risks, their likelihood and impact.  Most importantly, volatility and asset correlations might not follow historic norms and investment managers need to act accordingly.

The full report is available at: www.createresearch.co.uk and www.create.principalglobal.com

Grant Forster is CEO of Principal Global Investors (Australia), sponsor of the report.