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Diversification
Trustees and scheme sponsors are seeking ways of managing investment risk and volatility more effectively. A recent study showed that diversification of a scheme’s growth seeking assets across asset classes can materially improve a scheme’s risk/return profile. It is true that in a market crash all traditional growth asset classes do tend to fall in value together. However, over an economic cycle of 2 to 4 years, a diversified asset strategy will be expected to provide a materially more stable return than a pure traditional equity strategy.
The potential for these improved efficiencies can be modelled, to enable the trustees to make well informed strategy decisions.