Tommaso Mancuso: Are balanced portfolios safer without bonds?

Asset diversification is a key element of sound risk management. Harry Markowitz famously labelled diversification the only free lunch in finance - although how gratifying this lunch is depends on how stable cross-asset relationships prove to be. Over the past 20 years, investors in balanced portfolios have been able to rely on the complementary behaviour of stocks and bonds to moderate both volatility and drawdown risk. Additionally, the spectacular bull market we have seen in bonds meant this risk reduction came at virtually no cost in terms of returns. The multi-decade stability of...