Diversification effects of microfinance investments
16. November 2023
- Is microfinance suitable as a diversifier for an investment portfolio?
- How strongly does microfinance correlate with other asset classes?
- Does microfinance only increase the social return or also the efficiency of a portfolio from a risk-return perspective?
Due to the considerable growth of the microfinance sector in recent decades, microfinance as an asset class has increasingly come to the attention of investors.
The question quickly arose as to how the asset class should be categorised against the background of risk-return considerations. Previously, it was thought that microfinance did not correlate with traditional asset classes.
The empirical study of a bachelor’s thesis at the TH Köln now sheds light on this. Over an observation period of 18 years, it has been shown that demonstrable trends are emerging with regard to the direction and strength of correlation and that investors will have to differentiate more strongly in future when adding microfinance funds.
We have analysed for you the latest findings on the correlation strength of microfinance investments to other asset classes, their development and their behaviour in times of crisis. This white paper also looks at the opportunities that arise from the use of microfinance products for risk-related portfolio optimisation.
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