The Death of Diversification Has Been Greatly Exaggerated

Posted: 14 Jul 2017

See all articles by Antti Ilmanen

Antti Ilmanen

AQR Capital Management

Jared Kizer

Buckingham Strategic Wealth

Date Written: 2012


Diversification is famously referred to as the only “free lunch” in investing, but it has been under assault since the 2007–2009 global financial crisis, when virtually all long only asset classes moved down together. Ilmanen and Kizer argue that the attacks are undeserved. Most investors were never as diversified as they thought they were, and there is ample room for improvement by shifting the focus from asset class diversification to factor diversification. They show that diversification into and across factors has been much more effective in reducing portfolio volatility and market directionality than asset class diversification. The benefits are greatest for long–short investing, which requires shorting and leverage but are also meaningful in a long-only context.

Keywords: Diversification, Style Investing, Factor Investing

JEL Classification: G01, G11

Suggested Citation

Ilmanen, Antti S. and Kizer, Jared, The Death of Diversification Has Been Greatly Exaggerated (2012). Journal of Portfolio Management, Vol. 38, No. 3, pp. 15-27, 2012, Available at SSRN:

Antti S. Ilmanen

AQR Capital Management ( email )

United Kingdom
+447887475184 (Phone)

Jared Kizer (Contact Author)

Buckingham Strategic Wealth ( email )

8182 Maryland Avenue Suite 500
St. Louis, MO
United States

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