Several studies have suggested that hedge funds are sufficiently diversifying to merit inclusion in investor portfolios, but this is disputed for example by Mark Kritzman"Portfolio Efficiency with Performance Fees", Economics and Political Strategy (newsletter), February 2007, Peter L. Bernstein Inc. Hulbert, Mark "2 + 20, and Other Hedge Fund Math", 'New York Times', March 4, 2007 .

A Worrisome Bond Market The bond market will be a special worry, said David Shulman, chief equity strategist for Salomon Brothers, who last Wednesday cut his recommended allocation for stocks in investor portfolios to 45 percent from 50 percent.

Yesterday, after a record 13 straight advances that piled $200 billion onto the value of investor portfolios, the stock market rally of 1987 finally suffered a down day.

Despite their usually prominent position in investor portfolios, large-capitalization domestic stocks and stock funds, which include Standard & Poor's 500-stock index funds, have been out of favor with investors in recent years, and no wonder.

Several studies have suggested that hedge funds are sufficiently diversifying to merit inclusion in investor portfolios, but this is disputed for example by Mark Kritzman who performed a mean-variance optimization calculation on an opportunity set that consisted of a stock index fund, a bond index fund, and ten hypothetical hedge funds.

So we would expect to see investor portfolios shift more in the direction the theory predicts: taxable bonds in tax-deferred accounts, and stocks in taxable accounts to take advantage of lightly taxed capital gains and untaxed dividends.

It may not have been booked profits in investor portfolios, but it was perceived as retirement funds.

Gold should continue to be a part of investor portfolios as an insurance - especially against potential quantitative easing in the major Western economies.

We did not see much retail participation earlier in the week when the market was going up," said one Treasury bond trader, who added that yesterday's declines did not seem to be the result of any heavy selling from investor portfolios.

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