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T Rowe Price Explains Why Diversification Is A "Flawed Concept"

Charles Paikert, New York, November 18, 2020

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A decade of central bank money printing has already questioned traditional asset allocation ideas and approaches to diversification. The global pandemic has added a new twist to this. We interview T Rowe Price, the asset manager, about its doubts of whether diversification really does the job investors think it does.

The case for stocks
“On a relative basis, we believe stocks are less expensive than Treasuries,” he said. “The equity premium is alive and well.”

Stocks are not in a bubble compared with bonds, Page declared. If stocks are valued by discounted future cash flow, it’s logical that the stock will be valued higher if the discount rate goes down.

In addition, the large amounts of liquidity in the markets and cash on the sidelines further indicates that investors “are willing [and] able to buy on dips,” according to Page. “It’s dry powder for the markets.”

As for market trends, T Rowe is “closely monitoring the potential for a great rotation from growth to value stocks,” Page said. “Investors should look to take advantage of cheap cyclicality on a relative basis in small caps, high yield and emerging markets.”




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