The Academic Background
The concept of strategic asset allocation is founded on important discoveries about investment risk made by the American economists and Nobel Laureates, Harry Markowitz and William Sharpe. They concluded that the most effective way to minimise investment risk was diversification – investing in the broadest possible range of assets in a systemised way. If non-correlated assets (that is assets with completely contrasting behaviour patterns in different economic situations) could be matched together within a portfolio then they could cancel out each other’s risk without affecting each other’s potential to generate returns and without the need to dip in and out of the markets constantly in response to different economic events.
