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Diversification, (un)correlation and long-term returns: The case for insurance-linked securities
We are living in volatile times. That is particularly true for global markets, with stock market volatility, as measured by the VIX index for the S&P 500, having recently reached a three-month high. Meanwhile, global government bond yields are rising sharply as markets digest rapidly increasing sovereign debt ratios.
Schroders has warned before of the unintentional risks for investors who do not make deliberate, active choices in a world that has become geopolitically and economically much more uncertain.
We have also championed the benefits of portfolio diversification, to enhance downside protection, bring potential return opportunities, and, importantly in the current climate, gain exposure to alternative sources of income.
In this context, it is worth considering the potential benefits of insurance-linked securities as a valuable (and perhaps the only truly) uncorrelated source of income within a diversified portfolio – and one that has generated exceptional performance over both recent years, and the longer term.
What are insurance-linked securities?
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Schroder Investment Management North America Inc. (“SIMNA”) is an SEC registered investment adviser, CRD Number 105820, providing asset management products and services to clients in the US and registered as a Portfolio Manager with the securities regulatory authorities in Canada. Schroder Fund Advisors LLC (“SFA”) is a wholly-owned subsidiary of SIMNA Inc. and is registered as a limited purpose broker-dealer with FINRA and as an Exempt Market Dealer with the securities regulatory authorities in Canada. SFA markets certain investment vehicles for which other Schroders entities are investment advisers.
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