This page has been archived and commenting is disabled.  Why
Asset-Allocators Are Anxious And Balanced-Funds Are Baloney
Tyler Durden's picture   Modern Portfolio Theory (MPT) is
broken. That is how we interpret Niels Jensen's (Absolute Return
Partners) latest missive as he draws a concerning line between
the number of managers who rely sheep-like on the diversifying
'artifacts' of MPT in a new normal world of undiversifiable
systemic risks. The shifts in intra- and inter-asset class
correlations (both long- and short-term) have been incredible
both in terms of direction change and magnitude - for example
(as Nielsen notes) - In the 2000-03 bear market commodities were
an excellent diversifier against equity market risk with the two
asset classes being virtually uncorrelated (+0.05). Nowadays,
the two are highly correlated (+0.69). This shift to a risk-on /
risk-off world, fed by central bankers, makes the empirical
Sharpe ratios of olde and track records of your favorite
balanced-fund manager entirely usele