Diversification in Correlated Financial Ecosystems

Stockholm (Ekonamik) – Between elections in South Africa and central bank meetings in Brazil and Norway, Ekonamik peeked into asset manager’s views of alternative investments this week.

The news this week was dominated by central banks. Norges Bank’s Executive Board kept its policy rate unchanged at 1.0% at its May interim meeting last week. The current assessment of the outlook and balance of risks suggests a likely rate raise in June, according to Governor Øystein Olsen. Across the pond, Brazil‘s central bank also kept rates on hold a decision that was underlined by a perceived slow down in the country’s recovery. In politics, foreign investors welcomed the sixth consecutive victory of President Cyril Ramaphosa  African National Congress party (ANC) in South Africa’s parliamentary election, but with a substantially reduced majority. In other news, the US trade war continued to escalate with more tariffs added to Chinese products and even more on the way, potentially extending into Europe as well.

Following earlier discussions about market correlations and volatility, our “Asset Managers’ Insights” column focused on the main providers of diversification, alternative investment managers. Andrew Draeneen, Head of Liquid Alternatives at Schroders emphasised the need for clients to be as diversified as possible in an interview with Ekonamik. Our broader review of alternative asset managers also suggests that the present patterns of correlations create severe hurdles for diversification, leading some to go so far as suggesting that cryptocurrencies might be a solution. Less controversially, new management tools and tech companies are indeed seen to be disrupting markets by undermining traditional investment strategies.

Finally, in a more analytical article, we also highlighted the innovative investment approach of First Quadrant a boutique investment manager from California who was in town to discuss the opportunities revealed by their ecologic market approach.

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