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Apr 28, 2021

Although many firms look at asset allocation from a capital allocation perspective, this approach doesn’t tell the full story, and this has been evident during times of recent market stress. Traction is now gaining with a different approach.

This paper discusses some of the issues with the traditional capital allocation approach, and the fact that while portfolios constructed with this method appear well diversified, they are not. Some firms are now looking to view asset allocation as a combination of the traditional capital allocation approach and a newer risk allocation approach. This combination provides further insight into the potential diversification benefits by choosing more equally matched building blocks.

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