2018 Outlook: Why diversification may be coming back in style

There are two main challenges we believe investors will need to navigate in 2018

Dec 6, 2017 | Duy Nguyen and Jacob Borbidge

When we think about our outlook for 2018, we look for themes that can help us reduce risk and boost return potential — and we’re always on the lookout for blind spots that can pose an unexpected threat. The foundation of our process is the development of capital market assumptions — long-term forecasts for the behavior of different asset classes. Our expectations for returns, volatility and correlation serve as guidelines for our long-term, strategic asset allocation decisions.

Given our capital market assumptions, there are two main challenges we believe investors will need to navigate in 2018 (lower returns, higher volatility).

Where are the potential blind spots?

When equity markets experience the type of extended rally that we’ve seen over the past nine years, it’s very easy for investors to lose sight of the value of diversification. Not just among equities, fixed income and commodities — which is critical — but within each asset class as well.

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