To review because I think this is a likely test topic… 1. Asset class should be homogenous – have similar characteristics, behave in similar fashion 2. Diversifying – low correlation with other asset classes 3. Mutually exclusive – can’t have 1 asset be in multiple asset class groupings 4. Liquidity – be liquid enough so that it can be a significant portion of a portfolio (would alternatives then be considered an asset class? it is very illiquid and isn’t homogenous right?) 5. Asset classes together should make up the world’s investable wealth. Thoughts on alternatives? I think this was part of the book but i forget if it could be considered a good asset class?
I don’t think alternatives as a whole is mutually exclusive/exhaustive and homogenous. Commodities doesn’t equal hedge funds and so forth.
I didn’t think Alternatives taken together is considered an asset class rather each individual alternative (ie PE, hedge funds RE) is its own asset class. looking at them this way they would be more homogeneous, however some may be less liquid than others. obviously RE is not very liquid, however many people do use it as a large portion of their portfolio. So the question I guess would be how illiquid does an asset have to be before it is illiquid enough not to be a significant portion of a portfolio? more illiquid than RE I guess.
alternatives should be divided to different asset classes for they are not homogenous to have same attribute
Alternatives are more of a group of asset classes. You just list alternatives to keep the list shorter.
just remember DELHI: (D)iversifying Mutually (E)xclusive (L)iquidity (H)omogeneous world’s (I)nvestable wealth
They should also have good breadth (not exclude too many of the potentially available assets).