Many individual traders whether they are institutional or retail focus and specialize in one strategy in one market. While that is fine for part of your money if done right there are many advantages to running multiple strategies inside of your portfolio. Among them are a more consistent steady stream of returns, lower drawdowns, and the ability to perform in all market environments.
How do you achieve all of this? Well you have to go out and find successful strategies. You then have to check their correlation to each other. Depending upon the size of your portfolio you can definitely have overlap but the overall goal is to have several uncorrelated strategies. You want managers in different areas trading different ways. One manger that is involved with growth stocks, one in value stocks, another that is a trend following CTA (commodity trading advisor), another that does statistical arbitrage, a bond manager, an emerging markets manager, etc. You get the idea. As I said earlier some overlap is fine. In fact if you have large portfolio it is good to have a bit of overlap. If you can get multiple growth stock managers that trade slightly differently you will have added a bit more diversification to your returns albeit usually only a small amount. It also makes it so if one starts to under-perform you aren’t as dependent on them to extract the strategies alpha.
This obviously isn’t everything there is to generating good returns in good and bad times but is an often overlooked part of the puzzle. I can’t begin to count the times that I have talked to someone who was diversified into 10 different mutual funds by a financial advisor only to find they were barely diversified at all. Look to different strategies in different markets or to managers that trade in different markets and strategies and you will see that your returns become steadier and usually go up over time.
-The Macro Trader
P.S. In case you didn’t know most managers that trade in multiple strategies across multiple markets are Global Macro Funds or Multi Strategy Funds.