Others have gone further afield, moving into off-market assets like infrastructure or private equities, said Rupert Watson, head of asset allocation at Mercer Ltd. in London.
“There are things you can do -- the simple diversifying into non-listed things, a good sprinkling of hedge funds in there,” Watson said in a Bloomberg Television interview. “I don’t think you should kid yourself that portfolios will be as diversified as they have been in the past.”
For asset allocators unable to venture into illiquid markets, they’ll be coping with a lack of natural hedges during periods of market rotations, according to SVM’s McLean. The prospect of heightened correlations and poor returns has pushed money managers to more closely match the benchmarks, he said.
“When there’s a big market rotation, the worst thing that can happen is not only that you go down, but you underperform,” McLean said. “You don’t generally lose business just by going down, so people tend to get closer to benchmarks.”
This article was provided by Bloomberg News.