Alternative Thinking Quarterly
Three anchors — historical performance, theoretical foundations and current valuations — provide a useful and complementary framework to estimate long-term expected returns. Depending on investors’ time horizons, specific anchors should be given more or less weight.
Diversification remains underutilized in most institutional portfolios. It may improve risk-adjusted returns, active returns and total returns more reliably than concentrated positions can. We review three ways diversification may systematically improve long-term returns.