Does a more diversified, multi-asset class portfolio do a better job of balancing risk?
Commonfund research has demonstrated that a traditional 70/30 stock/bond portfolio has north of 99% of its risk allocated to equities.
Thus portfolio risk in the traditional portfolio is not broadly diversified across equities and fixed income, but rather, highly concentrated in one exposure - equities.
In this paper, we take a deeper look at portfolio risk exposures in diversified, multi-asset class portfolios, using the typical endowment portfolio as the paradigm.
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