MODERN PORTFOLIO THEORY IS DEAD... In the wake of the financial crisis, a lot of "market experts" were pondering the death of Modern Portfolio Theory ... it was thought that the benefits of diversification failed to adequately protect investors from the market rout of 2008 and 2009. However, as was written in a 2012 piece by John Liu (then of Spartus Capital) titled 'Risk Parity or Risk Parody?' faulty applications of the theory were more likely the cause for the perceived failures of diversification: "asset allocators unwittingly diversified their 'sources of return' rather than their 'sources of risk' as MPT demands. This failure to properly implement MPT perhaps contributed more to losses than the failure of MPT itself." During the crisis, hedge fund investments performed very well relative to stocks but they have since lagged dramatically as equity markets rallied... powered by seemingly perpetual monetary stimulus. Consequently, in...