Asset allocation and the theory behind it is a critical cornerstone in portfolio management today but behind all the discussions on asset allocation we should keep in mind the key properties to look for in identifying a true asset class:
(DICHM)
1. Diversifying - the name says it all really. The asset class identified should not be 100% correlated with any other
2. Investable - there is just no point in identifying an asset class that one cannot gain any exposure to
3. Group Global Investable Assets: Together with other asset classes the group should constitute all or close to all investable global assets.
4. Homogenous - the assets within an identified asset class should behave in similar ways. i.e. don't put corporate bonds with inflation linked fixed income securities together in one asset class as they behave very differently (when rates rise due to higher inflation, corporate bonds will likely fall significantly more than inflation linked securities that will increase coupons in line with inflation)
5. Mutually exclusive - the asset class should not some of the assets that are already in another asset class
(DICHM)
1. Diversifying - the name says it all really. The asset class identified should not be 100% correlated with any other
2. Investable - there is just no point in identifying an asset class that one cannot gain any exposure to
3. Group Global Investable Assets: Together with other asset classes the group should constitute all or close to all investable global assets.
4. Homogenous - the assets within an identified asset class should behave in similar ways. i.e. don't put corporate bonds with inflation linked fixed income securities together in one asset class as they behave very differently (when rates rise due to higher inflation, corporate bonds will likely fall significantly more than inflation linked securities that will increase coupons in line with inflation)
5. Mutually exclusive - the asset class should not some of the assets that are already in another asset class
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