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Alternative Market Briefing

Diversification research introduces new explosive index

Tuesday, June 19, 2012

Beverly Chandler, Opalesque London: New research from Ineichen Research and Management AG examines diversity and introduces the Financial Explosivity Index. In a lengthy report entitled Diversification? What diversification?, Alexander Ineichen quotes everyone from Einstein to Oscar Wilde to Woody Allen and finds that the idea of diversification is very old and is essential to survival of wealth, life, and everything.

Diversification in terms of investment is a useful selling point, Ineichen says. "The institutional pioneers invested in the 1990s; early adaptors around 2000-2002; and then the institutionalisation of the hedge fund industry took off. The institutionalisation of hedge funds took place during a time where nearly any diversified portfolio of hedge funds had outperformed equities or a 60/40 equity/bond mix on a rolling five year basis. The main selling points were "absolute returns," or "alpha," or the hedge-funds-can-make-money-in-all-market-conditions argument. Diversification was an important additional selling point; it always is. Whether it is emerging market bonds, CDOs, wind parks, etc. the diversification argument is most certainly to enter the sales pitch".

Ineichen writes that the "buy low and sell high" adage is arguably overused and easily ridiculed. "The "buy low and sell high" adage is essentially the colloquial five word summary of value investing" ......................

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