Diversifying your diversifiers
When equity markets fell in 2022, many investors realized bonds aren’t always an effective recessionary hedge especially in the face of rising and sticky inflation. Thus, finding strategies immune to duration risk that can still deliver the intended diversification benefits can be quite useful. Certain hedge fund strategies may fill this role and expand portfolio diversification effectively. This isn’t to say that fixed income shouldn't feature in a portfolio. It should, but we believe that given the return potential, investors may do well to find options to complement or diversify traditional fixed income.
Key to this is identifying what matters most across these two dimensions — offsetting potentially lower returns or adding protection at the (marginal) expense of some return. Regardless of where investors fall on the return/diversification continuum, we believe diversified, uncorrelated strategies, including multi-strategy and global macro, may be well-positioned to provide tangible benefits and should, in many cases, be a mainstay in investor portfolios, especially in this highly uncertain and turbulent environment we seem to have entered.
