Fri, Apr 25, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Alternative Market Briefing

Diversification may not be key according to Towers Watson

Tuesday, July 24, 2012

Beverly Chandler, Opalesque London: Robin Penfold and Craig Baker of Towers Watson have arrived at the conclusion that diversification is not necessarily key in equity investors’ portfolios. The pair presents their findings in their paper, Concentrated equity products, why we generally prefer them to diversified products for a typical investor’s portfolio, reporting that adding skilled active management increases expected return without much change in total risk. "We therefore encourage equity investors to seek products with higher expected returns. That means concentrated rather than diversified products" they conclude.

The choice between focussed or diversified investment stems from the investor, the authors write. "Most investors want to improve the return efficiency of their entire portfolio. We call this a 'portfolio-level preference’. That requires them to consider the contribution of asset allocation and active managers. We generally find that using skilled active managers helps to improve overall investment efficiency. That is because expected active returns add to expected asset returns, whilst overall risk barely changes with the introduction of active risk. We therefore expect active management to have positive marginal impact on overall risk-adjusted return."

Penfold and Baker believe that if all other things are equal, investors wit......................

To view our full article Click here

Banner
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing
  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Exclusive: Rainwater and Blue Sky - an Australian water fund emerges[more]

    Bailey McCann, Opalesque New York: Financial reporters often tout new funds and investments as uncorrelated investments, but few can say they are uncorrelated to everything but weather. Enter Blue Sky Alternative's water fund which invests in the permanent rights to Australia's water. Sev

  2. Regulatory – Expect greater SEC scrutiny of hedge funds that share information or collaborate in advance of their trades, Alternative funds to get SEC test for leverage, liquidity[more]

    Expect greater SEC scrutiny of hedge funds that share information or collaborate in advance of their trades From Thelawyer.com: A recent Wall Street Journal article — ‘Activist investors often leak their plans to a favoured few’ — focused attention on ‘activist’ investors and stock analy

  3. …And Finally – This week's least competent criminal is Austrian[more]

    From ABCnews.go.com: A German sought by authorities for alleged fraud has been arrested in Austria — after dropping into a police station to ask officers whether he was under investigation. Police in Salzburg said the 59-year-old man walked into a police station in the city on Friday night. Sp

  4. Investing – Hedge funds find pitfalls along with profits in real estate ventures, Marcato Capital Management makes new bet on Dillard’s[more]

    Hedge funds find pitfalls along with profits in real estate ventures From Law360.com: Hedge funds have joined the rush to real estate deals and development in recent months to close the financing gap left by tightening bank standards, but attorneys say many aren't prepared for the disclo

  5. Agecroft Partners estimates 90% of hedge funds using social media[more]

    The use of social media has increased significantly within the hedge fund industry over the past couple of years. Social media is broadly used by investors as part of their due diligence process on hedge funds, by service providers in their sales efforts to hedge funds, and by hedge funds to enhance