Diversification – Managing Risk Through Investment Selections
The Federation manages investment risk through diversification of its assets. Our investments are diversified by asset type, risk profile and geography to reduce the possibility of any single asset having a negative impact on the fund overall. If one asset goes down, the goal is to have another one going up to cover losses and still provide a positive return. The result is a well-diversified portfolio with safety measures in place to limit risk while still seeking sufficient returns to keep your pension and benefit plans stable and sustainable in the long term.
Below is a snapshot of the different asset classes the STF holds throughout all our funds as an example of how we diversify our investments.
The steep decline in bond and equity markets in 2021-22 highlighted the importance of diversification in our portfolio. Newly added alternative asset investments in real estate, private equity, credit and infrastructure helped offset some of the negative return impact. These types of investments characteristically have returns that show low correlation to the returns of stocks and bonds and offer some inflation protection.