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Central Banks’ interventions have distorted market prices and dynamics. This has rather significantly changed the portfolio risk management.
Portfolio risk management prior to successive QEs
A balanced portfolio between fixed-income and equities offered a satisfying risk-adjusted performance provided the selection of equities and bonds were adequate. Equities would generate long-term performance, bonds would dampen their subsequent volatility providing some stable returns, while a smart diversification would bring further positive contribution. This no longer works. Central banks’ interventions have lowered bond yields to such levels that they no longer generate protective returns and can actually add to fund’s volatility. Furthermore...
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