Adapative Asset Allocation
Via Abnormal Returns:
One of the tenets of modern portfolio management most damaged due to the financial crisis has been asset allocation. We have discussed how during a bear market correlations tend to one, the myth of the all-weather portfolio and how investors may need a more dynamic approach to asset allocation. It seems we are not alone in our opinion(s).
Noted finance professor Andrew Lo of MIT has a piece in the Financial Times discussing how the practice of portfolio management has been upturned in part due to the financial crisis – asset allocation included. While we recommend you read the entire piece, the bottom line is that the investment world is now much more complicated post-crisis. Lo writes:
Diversification is still a good idea, but it has become much harder to achieve. Thanks to the increasing competition for additional yield, every type of investment vehicle and strategy has experienced substantial growth in assets under management.
The asset classes (and dynamic) strategies that have been touted as portfolio diversifiers have seen an influx of capital and managers. Lo cites the case of the “carry trade” that has become popular enough to have spawned an ETF that follows the strategy.
Read the full post here
Tags: EMH, investing, MPT, portfolio-management
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