Risk factor investing: The path to true diversification

  Asset class diversification, the basic tenet of cross-asset investing, did not protect investors during the 2008 crisis. The risk factors embedded in traditional asset classes turned out to be highly correlated and provided no shelter in turbulent markets. Investors are now realising that, in order to deliver a truly diversified, risk-controlled portfolio, it is necessary to diversify the risk factors themselves. This means looking outside the traditional asset class toolkit. Diversification is an often-used but much-misunderstood term. Examining the risk of a typical balanced...