Speaking at the PortfolioConstruction Markets Summit in Sydney yesterday, BlackRock global chief investment strategist Russ Koesterich said the correlation between stocks and bonds is returning to its long-term average – which means investors are no longer receiving the same diversification benefit they have in recent years from holding just stocks and bonds.
Mr Koesterich also said traditional asset classes tend to be more fully valued or expensive compared with alternative assets.
Implementing alternative assets into a portfolio can smooth the impacts of “slow growth, low interest rates, low inflation in developed countries, global political tensions and uncertainties in emerging markets” on traditional assets, he said.
Mr Koesterich warned investors that an “across the board approach to alternatives is not going to work”, however, “nor [will] the alternatives which have shown the strong returns over the past several years”.
Mr Koesterich said BlackRock is optimistic about alternatives such as infrastructure, long-short credit and long-short equities and physical real estate.
“We have modest expectations for commodities as an asset class, but we think there are pockets that look better than others within commodities,” he explained.
Cyclical commodities such as energy and industrial metals, including zinc and copper, were likely to benefit from some improvement in the economy.
According to Mr Koesterich, the supply/demand model for commodities such as industrial metals is likely to improve in 2014 from 2013 since inventories will decrease slightly.
