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Why Diversify Now?

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The purpose of diversification is to control losses from any one asset class and reduce volatility by allocating across a range of investments. Undiversified portfolios can perform extremely poorly or extremely well; when they perform well, investors may not realize how much risk they took. Thus, Aon believes that the need to diversify portfolios—although it has always been strong—is increasingly critical in today’s market environment.

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Index definitions:

  • S&P 500® Index. A capitalization-weighted index representing stocks chosen by Standard & Poor’s, Inc. for their size, liquidity, stability, and industry group representation. The companies in the S&P 500 Index are generally among the largest in their industries.
  • Barclays Capital Aggregate Bond Index. This index is the broadest representation of the investment-grade U.S. bond market. It includes allocations to U.S. government bonds, investment grade corporate bonds, and mortgage- and asset-backed securities. 
  • Cboe Volatility Index® (VIX® Index®). The VIX Index is an up-to-the-minute market estimate of expected volatility that is calculated by using the midpoints of real-time S&P 500® Index (SPX) option bid/ask quotes. More specifically, the VIX Index is intended to provide an instantaneous measure of how much the market “thinks” the S&P 500 Index will fluctuate in the 30 days following each tick of the VIX Index. 
  • MSCI All Country World Index. A capitalization-weighted index of stocks representing 46 stock markets in Europe, Australia, the Far East, the Middle East, Latin America, and North America.
  • HFRI Macro Systematic: Diversified Index. Systematic: Diversified strategy investment processes typically are functions of mathematical, algorithmic, and technical models, with little or no influence of individuals over the portfolio positioning. They include strategies that employ an investment process designed to identify opportunities in markets exhibiting trending or momentum characteristics across individual instruments or asset classes. These strategies typically employ quantitative processes that focus on statistically robust or technical patterns in the return series of the asset, typically focus on highly liquid instruments, and maintain shorter holding periods than either discretionary or mean reverting strategies. Although some strategies seek to employ counter-trend models, they benefit most from an environment characterized by persistent, discernible trending behavior. Systematic: Diversified strategies typically expect to have no greater than 35% of the portfolio in either dedicated currency or commodity exposures over a given market cycle.
  • NCREIF ODCE Index. A capitalization-weighted index of investment-grade income-producing properties.
  • Burgiss Global Private Equity Index. A collection of private capital data.
  • CDLI Private Debt Index. An index that seeks to measure the unlevered, gross of fee performance of U.S. middle market corporate loans, as represented by the asset-weighted performance of the underlying assets of business development companies (BDCs), including both exchange-traded and unlisted BDCs, subject to certain eligibility requirements. The CDLI Total Return Index includes three components: income return, realized gain/loss, and unrealized gain/loss.

This document has been produced by Investment Policy Services, a division of Aon plc, and is appropriate solely for institutional investors. Nothing in this document should be treated as an authoritative statement of the law on any particular aspect or in any specific case. It should not be taken as financial advice and action should not be taken as a result of this document alone. Consultants will be pleased to answer questions on its contents but cannot give individual financial advice. Individuals are recommended to seek independent financial advice in respect of their own personal circumstances. The information contained herein is given as of the date hereof and does not purport to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information set forth herein since the date hereof or any obligation to update or provide amendments hereto. The information contained herein is derived from proprietary and non-proprietary sources deemed by Aon Hewitt to be reliable and are not necessarily all inclusive. Aon Hewitt does not guarantee the accuracy or completeness of this information and cannot be held accountable for inaccurate data provided by third parties. Reliance upon information in this material is at the sole discretion of the reader.

This document does not constitute an offer of securities or solicitation of any kind and may not be treated as such, i) in any jurisdiction where such an offer or solicitation is against the law; ii) to anyone to whom it is unlawful to make such an offer or solicitation; or iii) if the person making the offer or solicitation is not qualified to do so. If you are unsure as to whether the investment products and services described within this document are suitable for you, we strongly recommend that you seek professional advice from a financial adviser registered in the jurisdiction in which you reside. We have not considered the suitability and/or appropriateness of any investment you may wish to make with us. It is your responsibility to be aware of and to observe all applicable laws and regulations of any relevant jurisdiction, including the one in which you reside.

Aon Hewitt Limited is authorized and regulated by the Financial Conduct Authority. Registered in England & Wales No. 4396810. When distributed in the US, Aon Hewitt Investment Consulting, Inc. (“AHIC”) is a registered investment adviser with the Securities and Exchange Commission (“SEC”). AHIC is a wholly owned, indirect subsidiary of Aon plc. In Canada, Aon Hewitt Inc. and Aon Hewitt Investment Management Inc. (“AHIM”) are indirect subsidiaries of Aon plc, a public company trading on the NYSE. Investment advice to Canadian investors is provided through AHIM, a portfolio manager, investment fund manager and exempt market dealer registered under applicable Canadian securities laws. Regional distribution and contact information is provided below. Contact your local Aon representative for contact information relevant to your local country if not included below.

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Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.

The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
Copyright 2019 Aon plc