# Miton’s Anthony Rayner: Is diversification dead? Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2017-07-28 Category: INVESTING Category URL: https://financedigest.com/category/investing Meta Title: Diversified Multi-Asset Portfolio Strategies for Preserving Meta Description: Discover how to structure a truly diversified multi asset portfolio with equity themes like technology, healthcare, European banks, and the Indian consumer, URL: https://financedigest.com/mitons-anthony-rayner-is-diversification-deadhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/hand-and-gold-people-cogs-a-1736843641707-compressed.jpg) - The same asset class won’t always be the best diversifier - Likely that growth will remain decent and central banks will raise rates opportunistically - Equity portfolio themes include technology healthcare, European banks and the Indian consumer **Anthony Rayner, manager of Miton’s multi-asset fund range comments:** “The number one question we are asked by clients is how to structure a truly [diversified multi asset portfolio](https://www.financedigest.com/how-to-successfully-diversify-your-portfolio.html "How to Successfully Diversify Your Portfolio") when bonds are so expensive. This is [closely followed by concerns about high valuations across financial](https://www.financedigest.com/fast-track-financial-close.html "FAST-TRACK FINANCIAL CLOSE") markets in general. Both of these points relate directly to concerns about preserving capital. “The hierarchy of risk in multi asset [funds tends to be dominated by equity](https://www.financedigest.com/global-equity-funds-see-large-outflows-on-slowdown-worries.html "Global equity funds see large outflows on slowdown worries") risk. This is currently the case, so it’s right to consider how to diversify that. What’s certain is that it won’t always be the same asset class that’s the best diversifier, as the behaviour of asset classes and the [way they behave in relation to each other changes](https://www.financedigest.com/the-future-of-retail-and-the-ways-that-retail-has-changed-for-consumers-during-the-pandemic.html "The future of retail and the ways that retail has changed for consumers during the pandemic") all the time. “For example long-dated developed economy [government bonds](https://www.financedigest.com/lg-says-not-a-forced-seller-of-uk-government-bonds.html "L&G says not a forced seller of UK government bonds"), the ‘textbook safe haven’, are very expensive compared to history and, with yields so compressed, provide a very limited potential buffer in the event of a risk-off scenario. In addition, with interest rates close to multi-year lows and with a large proportion of government bonds owned by [central banks](https://www.financedigest.com/central-banks-start-turning-off-the-cash-taps.html "Central banks start turning off the cash taps"), it’s not hard to see the headwinds that bonds face. “One of the advantages of managing multi asset funds is the range of levers we can employ, but that also means we can pick our battles. In bonds, we can avoid the very low yielding Eurozone government and corporate bonds and the longer duration area of the [bond market](https://www.financedigest.com/britains-bond-market-turmoil.html "Britain’s bond market turmoil") more generally, which is more sensitive to interest rate rises. Instead, we have material exposure to good quality short-dated US corporate bonds. “What else might help to diversify multi asset funds? This depends on what [scenario we face](https://www.financedigest.com/factbox-possible-scenarios-as-italys-government-faces-collapse.html "Factbox-Possible scenarios as Italy’s government faces collapse"). It’s likely that asset classes will behave quite differently if, say, stronger growth [pushes up inflation and central banks have to raise rates](https://www.financedigest.com/major-central-banks-renew-rate-hike-push-in-may.html "Major central banks renew rate hike push in May") versus a scenario where cyclical growth continues to soften and disinflationary pressures return. We can’t [know the future](https://www.financedigest.com/the-end-of-traditional-financial-institutions-as-we-know-them-how-gen-z-is-shaping-the-future-of-financial-comms.html "The end of traditional financial institutions as we know them: how Gen-Z is shaping the future of financial comms "), and there are many more scenarios than this, for example in a severe risk-off event it might be that gold or cash is the ultimate diversifier. “Looking at the data in front of us now, our base [case remains](https://www.financedigest.com/japans-covid-19-cases-defy-asia-rebound-yet-fears-remain-for-winter-wave.html "Japan’s COVID-19 cases defy Asia rebound, yet fears remain for winter wave") for growth to continue to be decent and central banks to raise rates opportunistically. In this scenario, good diversifiers to equity would likely be short-dated investment grade corporate bonds while, within equity, we have a number of unrelated themes to help to diversify risk. We have exposure to technology healthcare, [European banks](https://www.financedigest.com/u-s-european-banks-could-lose-over-5-billion-from-risky-buyout-loans.html "U.S., European banks could lose over billion from risky buyout loans") and the Indian consumer, and would expect little obvious reason for these exposures to have a particularly close relationship. In addition, we have some equity which should do [well in a strong growth](https://www.financedigest.com/health-wellness-market-growth-is-expected-to-occur-at-a-healthy-cagr-of-0-0-from-2021-to-2031.html "Health & Wellness Market Growth is Expected to Occur at a Healthy CAGR of 0.0% from 2021 to 2031") environment, such as financials and materials, and equities which should do well in an environment of lower growth, such as technology disrupters. “We also ensure that these broadly unrelated investment views are scaled appropriately, so that total portfolio risk is not dominated by any of them. This includes trimming the winners, so that risk doesn’t become too concentrated. “More generally, while this bull run and economic cycle are extended compared to history, there’s no point in fighting ghosts. Yes, valuations are high but history has shown them to be a poor indicator of the timing of [market corrections](https://www.financedigest.com/markets-could-face-sharp-correction-bank-of-england-warns.html "Markets could face ‘sharp correction’, Bank of England warns"). “We don’t believe diversification is dead: [bonds are stretched but there are many different ways to diversify risk](https://www.financedigest.com/bank-of-england-says-it-will-unwind-bond-market-intervention-once-risks-have-subsided.html "Bank of England says it will unwind bond market intervention once risks have subsided") in multi-asset portfolios. In the meantime, we remain exposed to the [dominant](https://www.financedigest.com/europes-dominance-in-car-wax-market-will-remain-unchallenged-during-2022-2028.html "Europe’s Dominance in Car Wax Market will Remain Unchallenged During 2022–2028") trends but remain vigilant, with liquid portfolios so that we can ensure our funds are properly diversified, whatever the environment.” --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---