Strategic Diversification

Taking diversification to the next level

Financial advisers and their clients have learned firsthand that while diversification was once achievable during bear markets, in more recent crisis periods, it has failed them when they needed it most

Strategic diversification

While simple diversification among asset classes may provide some protection in “baby bear” markets (short, shallow downturns of less than 20%), it may not be enough to fend off “grizzly bear” markets (sustained, deep downturns of 20% or more) when traditional asset classes tend to go down together. That’s where strategic diversification comes in.

Our investment strategies offer a three-dimensional approach to diversification that aims to increase the odds that more of your portfolio is correctly positioned to weather market storms:

  • Diversification by asset class (e.g., stock, bonds, alternatives).
  • Diversification by investment methodology (e.g., momentum, trend following).
  • Diversification by time line.

Discover how different diversification styles can affect portfolio volatility and respond to market changes

Strategic diversification

Strategic diversification is our solution to reducing volatility in an attempt to achieve better results through full market cycles. This approach can be effective for investors no matter when they become invested during a market cycle.

Diversification styles

Illustrated portfolio of traditional asset class diversification

A portfolio of multiple equally-weighted asset classes is a simple form of risk-management which may increase potential performance, but much of the volatility remains.

Diversification styles

Illustrated portfolio of actively managed strategies

A portfolio combining equal weights of actively managed strategies further reduces volatility, and the investment path narrows.

SOURCE: Asset Data - Morningstar and Yahoo Finance, Hedge Fund Data - BarclayHedge. Equal Weight Hedge Fund Index Allocation consists of equal weight allocation to: Barclay Convertible Arbitrage, Barclay Distressed Securities Index, Barclay Emerging Markets Index, Barclay Equity Long Bias Index, Barclay Equity Long/Short Index, Barclay Equity Market Neutral Index, Barclay Equity Short Bias Index, Barclay European Equities Index, Barclay Even Driven Index, Barclay Fixed Income Arbitrage Index, Barclay Fund of Funds Index, Barclay Global Macro Index, Barclay Healthcare & Biotechnology Index, Barclay Merger Arbitrage Index, Barclay Multi Strategy Index, Barclay Pacific Rim Equities Index, Barclay Technology Index.

Active management approach

Bull market

Can allocate to trend-following, high-beta, and leveraged strategies in rising markets.

Active management approach

Sideways market

Can allocate to mean-reversion or pattern recognition strategies which can profit from volatility and market swings.

Active management approach

Bear market

Can allocate to inverse, leveraged inverse, or strategies with defensive asset class exposure that may profit from falling markets.

SOURCE: Flexible Plan Investments. These charts are used for illustrative purposes only and are not meant to represent actual accounts or strategies. 
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Please read Flexible Plan Investments' Brochure Form ADV Part 2A carefully before investing. 


Learn more about strategic diversification and how it can help your clients when the next “grizzly bear” strikes