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The Investment Assets Handbook: A definitive practical guide to asset classes by Yoram Lustig

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Investing in portfolio context

Multi-asset investing is about combining less than perfectly correlated sources of beta with sources of alpha to increase the likelihood of meeting the portfolio’s investment objectives. As described earlier, beta refers to returns driven by systematic market risks, such as equity, credit and maturity risks, or fundamental macroeconomic factors such as GDP growth, interest rates and inflation. These returns correspond to the returns of major asset classes, such as equities, bonds and commodities.

Each asset class should provide exposure to betas that are less than perfectly correlated with the betas offered by other asset classes. Therefore, combining as many asset classes with different beta exposures as possible ...

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