Practical Applications of The Death of Diversification Has Been Greatly Exaggerated

Abstract

Large institutions have been gravitating toward factor-based asset allocation as an alternative to traditional asset class diversification in the wake of the global financial crisis of 2007–2009.

In The Death of Diversification Has Been Greatly Exaggerated , Antti Ilmanen and Jared Kizer make the case that diversification into and across factors has been much more effective in reducing portfolio volatility and market directionality than asset class diversification.

Their award-winning article was published in the Spring 2012 issue of The Journal of Portfolio Management . It was awarded Best Article in the 14th Annual Bernstein Fabozzi/Jacobs Levy Awards. Ilmanen is a Managing Director at AQR Capital Management in London. Kizer is Director of Investment Strategy at Buckingham Asset Management in St. Louis.

This Practical Applications report outlines the six strategies that were identified in the research and that have generated excess returns over the long term.

“The factors are systemic rule-based strategies that have actually generated returns above the risk-free rate,” Kizer tells us in an interview.