The hypothesis has become a fact: four years ago we wrote about a world shaped by mega forces and supply constraints, and hypothesized that could lead to a more difficult environment for diversification. Today, those dynamics are firmly in place.
Correlations across a diversified multi-asset portfolio have risen (chart), reducing the shock-absorbing power of traditional diversifiers.
This reflects a structural shift. Supply constraints and policy trade-offs all contribute to it.
Portfolio construction needs to adapt accordingly. With fewer natural diversifiers, outcomes depend more on selectivity, dynamism, and active risk management than on simple asset class allocation.
