Diversification vs De-Risking: Evidence across Asset Classes
Do bonds diversify or only de-risk?
June 2026. Reading Time: 10 Minutes. Author: Nicolas Rabener.
SUMMARY
- Diversification and de-risking are different concepts
- Most assets de-risk rather than diversify
- Especially when measured against T-Bills
INTRODUCTION
Cliff Asness of AQR Capital Management commented on X on June 7th, 2026, that “bonds, as they are conventionally used, dilute equities much more than they diversify equities” – a striking observation given that most investors think of bonds primarily as diversifiers.
We have made similar observations across a range of alternative and options-based strategies that appear to offer little more than diluted equity exposure, often at significantly higher fees. Investors could replicate the risk profile of many such products simply by reducing their equity allocation and increasing their cash holdings. The popularity of products like the First Trust Long/Short Equity ETF (FTLS), which reached $2 billion in assets, is largely explained by persuasive marketing and the appeal to financial advisors of minimizing peak-to-trough drawdowns on client statements (read Replicating Popular Investment Strategies with Equities + Cash).
However, whether bonds and other conventional diversifiers are genuinely diversifying or merely diluting is a question that extends well beyond the alternative and options-based product universe. So how much are traditional asset classes – bonds, real estate, and gold – actually diversifying investor portfolios?
DIVERSIFICATION VS DE-RISKING VIA T-BILLS
Diversification is widely regarded as the only free lunch in investing. The core idea is that by allocating to uncorrelated assets,
