The preponderance of low interest rates has created an environment in which product providers offer investors new asset classes to diversify their risk, but a recent article in CFA Institute argues that the new alternatives don’t really provide additional diversification and that, in fact, “we don’t need many different asset classes in our portfolios.”

The article defines an asset class as “a group of assets with similar exposure to the fundamental drivers of the economy,” which include the following:

• Growth
• Inflation
• Human ingenuity
• Labor
• Land
• Resources and infrastructure
• Greed

Every asset class, the article says, can be tracked according to its exposure to these various drivers. Stocks, for example, are driven mostly by economic growth and human ingenuity, while government bonds are driven by slower growth, declining real rates and inflation. It offers the following chart to illustrate:

The article argues, however, that the roll-out of new “alternative” assets to entice investors by so-called diversification benefits is really only a “rehash of exposures to these various fundamental drivers.” These products don’t, in fact, offer anything new or different–a reality that will become painfully obvious when a crisis hits and such supposed ‘uncorrelated’ assets fall along with stocks.

“So the next time someone comes along promoting the benefits of, say, aircraft leasing  as an asset class, we can refer to the chart and see that this ‘asset’ is simply an expression of greed: It’s a credit instrument with a touch of economic growth exposure thrown in. Which, if we already have stocks and high-yield exposure in our portfolio, won’t add much in the way of diversification benefit.