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Benefits and limitations of diversification

In view of the current environment, investors should take a long-term approach and should be vigilant on risks

WORD OF CAUTION The substantial rally in financial markets has been accompanied by historically low levels of volatility. This suggests that markets may be vulnerable to a shock, leading to a potential re-pricing of some assets.

ASSET-CLASS performance so far in 2014 contrasts with performance in 2013 and also helps illustrate the importance of diversification for investors. Those markets which did very well last year, such as developed market equities, have not done as well this year, whereas most of the markets that...