View more on these topics

Diversifying could increase risk

IFAs trying to reduce the risk within their clients’ portfolios by diversifying across different asset classes may be inadvertently increasing their clients’ risk exposure, according to research by Saltus Partners.

Portfolio manager Dan Kemp says the research shows that different asset classes such as equities, bonds and property have seen a sharp increase in correlation, meaning that efforts to diversify portfolios could increase risk.

The research, based on data from Bloomberg and Merrill Lynch, looks at correlation between 21 different asset clas-ses, including gold, oil, large equities and US dollars.

Over the past 10 years, just 35 asset classes have delivered “highly correlated” returns but in the past three months, 228 out of a possible 420 asset combinations were highly correlated.

Kemp says that increased correlation also negates the benefits of investment techniques such as stockpicking and tactical asset allocation.

He says: “Most risk management systems rely on long-term data and as such may have missed the recent increase in correlation.

“We are looking at a period where proving or adding value is difficult for managers and where there are higher levels of risk than face value would suggest.”

Hargreaves Lansdown senior analyst Meera Patel says: “Inv-estors need to be a bit more savvy when it comes to diversification, focusing on which areas are cheap and investing according to their needs.”

Recommended

1

TMW launches new buy-to-let product and reduces rates

The Mortgage Works has launched a new 75 per cent loan-to-value buy-to-let mortgage aimed at first-time buyers and has made a number of changes to its buy-to-let and residential ranges. The lender has reduced selected fixed rate products in its buy-to-let range by up to 0.60 per cent and is scrapping arrangement fees across two, […]

Platinum edge from Meteor

Meteor Asset Management has introduced a structured product linked to the FTSE 100 and S&P 500 indices, with two early kick-out options.

1

Resolution completes acquisition of Axa UK Life business

Resolution’s acquisition of Axa UK Life business, under Friends Provident, has been completed and former Axa directors David Hynam and Andy Parsons have been appointed to the Friends board. The Friends Provident board and leadership team now have responsibility for the management of the day-to-day operations of the combined  businesses. Friends Provident chief executive Trevor […]

7

Tenet offers run-off PI cover to ex-ARs

Tenet has set up a scheme that allows former appointed representatives to obtain run-off professional indemnity insurance with the same level of cover offered to practising advisers. Using its Guernsey-based subsidiary company Paragon Insurance, Tenet has created a product that covers retiring advisers for any complaints made in the future. The rates are based on […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com