Multifaceted
Diversification
[ Lede goes here — one or two sentences explaining what multifaceted diversification means at Generation PMCA and why it matters. ]
TRADITIONAL DIVERSIFICATION
The limits of stocks & bonds
Most investors allocate to stocks and bonds exclusively. Equities serve as the return driver while fixed income is expected to reduce portfolio volatility, providing steady income and lower drawdowns.
When stocks decline significantly, as they do during recessions, the hope is that fixed income values rise — or, at worst, hold firm. Investors rely on the expectation that stocks and bonds are negatively correlated.
History has shown that the stock-bond relationship is much more dynamic, with many decades of positive correlation between the two asset classes. Stocks and bonds rose and fell together throughout the ’70s and ’80s. As 2022 also demonstrated, when both global bonds and equities fell by nearly 15%, investors need to look beyond these two asset classes to achieve more effective diversification.
Many investors believe that owning a large number of stocks across different sectors equates to sufficient diversification. But even when spread across various industries and geographies, stocks tend to be highly correlated — especially during periods of market stress.
When a broad economic downturn occurs, correlation between equities often rises, meaning that a portfolio composed solely of stocks is still heavily exposed to systemic risk. Diversification within a single asset class — no matter how broad — may not provide sufficient protection against major market drawdowns.
MULTIFACETED DIVERSIFICATION
Less correlated strategies, layered together
A multifaceted approach addresses the shortcomings of traditional diversification by combining diversification across asset classes, geographies, sectors, and styles — creating a portfolio of less correlated strategies that respond differently to economic and market conditions.
By layering together less correlated strategies — each with unique return drivers — investors can achieve a more robust and adaptive form of diversification than simply spreading capital across multiple stocks or income securities. Multifaceted diversification, utilizing Generation’s approach of combining multiple strategies, is designed to provide resilience against shocks for more consistent returns.
Gaining exposure to multiple strategies that are not expected to move in lockstep reduces risk and smooths overall performance under various market conditions — without sacrificing return expectations.
PORTFOLIO CONSTRUCTION
Built for your mandate
Our primary goal is to see that you achieve yours. A Generation portfolio manager consults with each client to determine an appropriate investment mandate that fits with the client’s specific objectives and circumstances.
We construct portfolios for the client’s mandate based on the relevant model portfolio(s) or a customized approach.
We keep our clients informed through regular contact, including quarterly portfolio statements and market letters. Direct access to portfolio managers is encouraged to ensure we are informed of changes to clients’ financial circumstances.
- Seeks high-quality, undervalued stocks from a global universe based on bottom-up analysis. Mindful of earnings revisions, returns on invested capital, and debt levels.
- Hedges to protect during expected downturns.
- Underperformance is expected in buoyant markets since undervalued opportunities become scarce.
- Combines our large cap strategy (i.e., Generation Global Insight) with our best North American small and medium cap ideas.
- Hedges to protect during expected downturns.
- Underperformance is expected in buoyant markets since undervalued opportunities become scarce.