• The new normal

    Low yields, increased market volatility and rising asset correlations are prompting investors to rethink traditional portfolio construction. Investing across a wider range of asset classes may help investors generate income and growth and diversify their portfolios.

    Rising correlations Correlation measures the degree to which assets move together and is measured on a scale from -1 to +1. Positively correlated investments move in the same direction; negatively correlated investments move in the opposite direction.

    One inherent challenge to building a diversified portfolio in today’s market is finding investments that provide an attractive rate of return and behave differently than other assets in a portfolio. Before the 2008 financial crisis, many investors believed a portfolio composed of 60% stocks and 40% bonds provided sufficient diversification. Today, however, stocks and bonds are now more correlated than they were in the past, causing many investors to reconsider this strategy.

    Increased volatility

    Rising market volatility, marked by swift changes in investor sentiment, has led to sizable swings in the performance of stock and bonds markets with increased frequency.

    Low yields

    Historically low interest rates have increased the need for investors to stretch for yield in order to boost returns and generate income.