Following a challenging year for both stocks and bonds in 2022, the outlook for diversified balanced portfolios is now more attractive over the coming decade, albeit with more volatility.
Yet, as allocators in uncertain economic and market environments, we seek unique opportunities that help our clients maximize financial returns over time through different ways of thinking. Such strategies include those led by diverse investment teams – including women, ethnically/racially diverse individuals, those identifying as LGBTQ+, veterans, and the uniquely-abled.
Historically, portfolio diversification applied to asset classes and strategies, not necessarily to the asset managers’ backgrounds. Whether from cultural differences, differentiated viewpoints, or access to distinctive networks, growing empirical evidence suggests diverse investment teams can lead to better decision making, which can be additive in portfolios over time1. Diversity tends to broaden a team’s point of view, which may help in identifying potential risks and opportunities in complex financial markets.
While there's been an industry surge in recent years in support of diversity in investment portfolios, in general, investors are minimally allocated. Some perceived misconceptions are that investing in diverse managers will come at the expense of competitive returns, that diverse firms lack scale (and may be too small or too new) to garner significant assets, or that cognitive diversity is not considered meaningful in the selection criteria of managers.
In our view, wealth industry inequities hinder innovation and performance when it comes to investor portfolios.
Allocations to actively managed, diversely-led investment strategies, moreover, are warranted in portfolios given competitive performance, agility which drives innovation, and access to unsaturated markets where competitive opportunities exist.
Diverse perspectives can lead to positive outcomes
According to studies, diverse teams minimize groupthink, and this diversity of thought is a key element in the research process, in identifying opportunities and in making better decisions1. Much of this empirical research has been centered on women and racially-diverse teams, where data is more widely available. Our team continues to explore the risk and return profiles of other diverse segments.
For now, our work shows most of the 1,000+ long-only equity and fixed income strategies – with at least 25% ownership by women and/or people of color – outpaced their peer median return within their respective asset classes during the past three-, five- and ten-year periods.
To read the publication in its entirety, select "Download PDF," below.