Leadenhall’s Alistair Jones says insurance-linked securities can deliver yield, liquidity and genuine diversification when traditional assets move together.
In a world of higher volatility and less reliable diversification from traditional asset classes, liquid alternatives have become an essential component in portfolio design. But do they actually diversify in a crisis — when it matters most?
For decades, advisers have relied on bonds as the go-to counterweight in a balanced portfolio. But as the correlation between bonds and equities turned positive in 2022–2023, shock ensued; and many investors are rethinking what they thought was a truism.
Australian investors are looking past the allure of franking credits and moving towards more unbiased diversification, with ETFs providing a cheap, liquid and highly available access point.
Diversification is one of the most effective tools an investor can use, for the simple reason that spreading risk means you are unlikely to get wiped out if one or two investments go bust. But it is not a foolproof concept, and in fact it is laden with potential traps.
Structured the right way, private debt can provide options that both cater to the defensive sleeve of a portfolio and serve as a proxy for equity market investments.
The tendency to relent to client commentary, which in many cases is driven by headlines and sentiment, is one of the biggest detractors from long-term returns.
