Of all characteristics that made the 2007-2008 financial crisis unique, one stands out: The simultaneous decline of almost every asset category.

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If you measure risk and return during a time period in which one asset category did poorly, that category will not appear on the efficient frontier.

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As discussed in a previous piece here, of all characteristics that made the 2007-2008 financial crisis unique, one stands out: the simultaneous decline of almost every asset category.

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On the other hand, Avis gets an interesting asset in an emerging category: short-term renting, where competitor Hertz has already gotten a foothold.

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Instead, each category of asset should have its own risk-capital reserves, which could not be shared with other assets, even if prices had not been correlated in the past.

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The next step would be to the current asset allocation and the investments in each category.

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There is no point in diversifying if the investment does not offer a genuinely different source of return (much of private equity falls into this category) or if the asset is already overvalued.

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Consider focusing on the YTD performance category as an initial reference point to identify underperforming asset classes for now.

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More detailed analysis reveals that many managers in the international small category had significant holdings in emerging market stocks, which is a different asset class that had stronger performance during the period.

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