Over the last several years, many investors discovered to their unfortunate surprise that their portfolios were not nearly as protected from downside risk as they thought and that their traditional idea of "diversification" fell short.

As part of our efforts to educate investors on what we call "The New Diversification," we recently spoke with Professor Christopher Geczy, Academic Director of the Wharton Wealth Management Initiative and an Adjunct Associate Professor of Finance at The Wharton School. Highlights from our conversation include:

  • Modern Portfolio Theory did not fail during the credit crisis — portfolio construction did.
  • Investors should consider incorporating a much wider range of strategies and assets as part of their core investment strategy.
  • Alternative investing is misunderstood.  Gaining access to investments that tend to behave differently is an approach that almost everyone should employ, and many alternative strategies are now available to a broad range of individuals.

Read the full discussion

Please consider the investment objectives, risks, charges and expenses of each fund carefully before investing. The funds prospectuses and, if available, the summary prospectuses contain this and other information about the funds and are available, along with information on other BlackRock funds, by calling 800-882-0052. The prospectus and, if available, the summary prospectuses should be read carefully before investing.

Diversification and asset allocation may not protect against market risk or loss principal.

The opinions presented are those of Professor Christopher Geczy as of April 2014, are not necessarily those of BlackRock or The Wharton School, and may change as subsequent conditions vary. Individual portfolio managers for BlackRock may have opinions and/or make investment decisions that, in certain respects, may not be consistent with the information contained in this report. 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 investment strategy. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance does not guarantee future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

No investment is risk free. International investing involves additional risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. The two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments. Investments in commodities may entail significant risks and can be significantly affected by events such as variations in the commodities markets, weather, disease, embargoes, international, political and economic developments, the success of exploration projects, tax and other government regulations, as well as other factors. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

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