Multi-Asset Class Investing
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Multi-Asset Class Investing is an investment theory which builds upon the effect observed when adding an asset class of higher risk (conventionally measured) to a portfolio to which it exhibits low correlation. Contrary to popular belief, this can result in achieving higher levels of return for lower levels of risk. Put another way, it is possible to construct a portfolio which will produce a higher return for the same level of risk.
This process can theoretically be repeated an infinite number of times, but in practice it will become increasingly difficult to find candidate asset classes which exhibit the necessary characteristics of likely higher return and low correlation. Also, an allocation to any one asset class which is so small that it cannot influence significantly the overall return of the portoflio is undesirable.
The Yale Model is probably the best known example of Multi-Asset Class Investing.
Leading books on the subject include Pioneering Portfolio Management by David Swensen (of Yale Model fame) and Multi-Asset Class Investment Strategy by Guy Fraser-Sampson.
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