Many investors are well-versed in the advantages of diversification, where investing in a broad array of investments, across asset classes, geographies and sectors can help smooth returns and lower risk. However, in 2008 many different asset classes moved in lockstep and some traditional diversification strategies were less effective. Since then there has been increased interest
in finding different ways to diversify portfolios.
The choice of investments available to investors is growing, and with it, scope to find greater diversification. Some asset classes and investing techniques, once the preserve of sophisticated, institutional investors, now offer interesting opportunities. Talk to your financial adviser about these alternative investments, such as property, commodities, or absolute return strategies (which seek positive returns in all market conditions). These are now more widely available to investors, either through traditional investment funds, which have seen an increase in absolute return funds or through Exchange Traded Funds (ETFs) which offer exposure to a range of alternative asset classes.
All investments involve an element of risk. The value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. Diversification and asset allocation may not protect you fully against market risk. Investments in alternative asset classes and strategies carry additional risks. Further information regarding the risks of investment is provided at the bottom of this page.
The opinions expressed are those of BlackRock as of October 2012 and are subject to change at any time due to changes in market or economic conditions.
This material is not intended to be relied upon as a forecast, research or investment advice and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any strategy in any jurisdiction in which such offer, solicitation or distribution would be unlawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. It is your responsibility to be aware of the applicable laws and regulations of your country of residence.
BlackRock has not considered the suitability of investment against your individual needs and risk tolerance. To ensure that you understand whether a financial product is available to you and whether it is suitable to meet your investment needs, please speak to your financial adviser.
All financial investments involve an element of risk. The value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. Past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product. Overseas investments may involve risk of capital loss from unfavourable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.
Investments specialising in commodities or property will seek exposure to a limited number of market sectors. Compared to funds which spread investment risk more generally through a variety of sectors, price movements may have a greater effect on the overall value of the investment. These specialist investments typically invest in smaller company shares which can be more unpredictable and less liquid than those of larger company shares. Trends which occur within the general equity market may not be mirrored within these specialist funds. In extreme market conditions, it may be difficult to realise your investments.
Absolute return strategies involve the use of complex derivatives to facilitate certain investment management techniques including the establishment of both ‘long’ and ‘synthetic short’ positions and creation of market leverage for the purposes of increasing the economic exposure of a fund beyond the value of its net assets. The use of derivatives in this manner may have the effect of increasing the overall risk profile of the investment. Investors should be aware that these strategies are not guaranteed to always deliver positive returns in all market conditions, and in strong markets, absolute return funds may not capture all of the upside.
Exchange Traded Funds (ETFs) seek to track a benchmark and holdings are not altered during rising or falling markets. Some ETFs are optimised and therefore may not hold all securities within the benchmark index. Performance may differ from the underlying benchmark index. ETFs trade on exchanges intraday at the current market price which may differ from net asset value. Transaction or brokerage fees will apply. Liquidity is not guaranteed.
Diversification and asset allocation may not protect you fully against market risk.
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