Useful

Yesterday I stumbled across a white paper on the Rydex Funds web site about something called Essential Portfolio Theory (EPT).

EPT is meant to be an update to Modern Portfolio Theory (MPT) by Harry Markowitz in 1952. EPT adds inverse index funds or shorting, commodity exposure, real estate and different ways to access these parts of the market.

The catalyst behind EPT is that MPT needs updating because of technological innovations, access to better information and the idea that stocks, bonds and cash may not be sufficient to properly diversify against losses or down markets.

This is the type of stuff I have been writing about since the beginning, but with no where near the insight or detail. I think this type of thinking is important to incorporate into your process as you manage your own portfolio.

For example there has been a renewed visibility for increased global demand for commodities. Increased demand guarantees nothing but it creates a simple tailwind for the area. There are many ways to access this part of the market. Some exposure offers a chance for strong returns and an asset class with a historically low correlation to US equities.

Foreign investing, not in terms of chasing heat but, as an asset class has a new importance. More investors have come to realize this. However for most people this means heavy exposure to western Europe. The creates the need to look beyond the England, France and Germany.

The white paper devoted a lot to inverse index funds/shorting but I wish it would have devoted more to foreign, commodities and real estate. Nevertheless it was a great read but it took a while.