If classifying real estate, commodities, and private equity as Alternative Investments in a portfolio does not make it a “Homogeneous” asset class then how should you classify them?
What about fixed income that includes government and corporate bonds? Would this be a homogeneous asset class?
I’m having trouble how descriptive an asset class has to be able to call them homogeneous.
Personally, I think that the idea of asset classes is stupid.
I don’t invest in an asset class. I invest in a particular asset.
I’m sorry: what was the question?
Every time i see the word homo[geneous]… I kind of chuckle a bit.
In 2017 mock, Q8 asks to explain why a list of 6 asset classes is not appropriately specified.
Out of the 6 classes, one is Alternative Investments consisting of real estate, commodities, and private equity.
The answer says Alternative Investments is not correctly specified because it is not homogeneous.
My question is what would make Alternative Investments “homogeneous?”
Would it be for Alts to be broken down further into say Real Estate which consists of REITs and Private Equity which consists of growth equity, buyout, etc?
In other words, it needs to be more descriptive?
Homogenous means the assets are very similar and highly correlated. Real estate, commodities and PE all have different behavior.
Examples of homogenous asset would be: US Equties (small caps, large caps, mid caps), Nominal Bonds, etc. They have to be similar!
An obvious example of non-homogenous is when you put real estate in fixed income. Yes real estate provides some income but it aint fixed income!
Here’s an asset allocation pie chart from somewhere. They’re all similar without each asset class, for the most part.:
According to IFT Q8 of the 2017 mock is no longer relevant