You don’t need more reason’s than this to make sure your portfolio is diversified. Christopher Whittall writes in The Wall Street Journal that correlation among assets has fallen to its lowest level since 2006.
Developed-world stocks and bond prices climbed in the summer of 2016 on a belief weak growth would persuade central banks to keep their massive stimulus programs in place for longer. But as expectations cranked up for higher growth and less stimulus, differentiation made a comeback. Bond prices crumbled and stocks surged.
Markets that once moved closer together were parting ways. U.S., small-cap stocks outperformed large caps. Commodities remained resilient despite a rising dollar, which makes these assets more costly. Emerging-markets investments took a dive as investors anticipated greater protectionism following the election of U.S. President Donald Trump.
Past indications of lower correlation haven’t turned into a more lasting breakdown. But the vast central-bank stimulus that investors say spurred the correlations is either beginning to tail off, or is expected to, reducing its sway on markets, some investors say. That could create a rare opening for active-fund managers, many of whom suffered significant outflows in recent years as money migrated toward simple, low-cost, index-tracking funds.
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E.J. Smith