Sometimes, after presenting Hallmark’s investment strategy to prospective clients, we’ll watch as they sit back, look at us and ask, “What about diversification?”

“You invest your clients’ monies among only the largest public companies in the U.S., like those in the S&P 500?” they’ll ask. “You don’t offer exposure to small-cap stocks, international and emerging markets or alternatives like hedge funds, commodities and real estate?”

Indeed, many wealth managers out there suggest investment solutions diversified across multiple asset classes. Some even employ mathematical models to arrive at their optimal solution to balance return and risk. Others simply overweight categories they believe hold promise.

We thought it would be worthwhile to see what investors really do gain from multi-asset-class strategies. So, we looked at the numbers.

We screened performance statistics from Morningstar’s separate account databases to compare returns, volatility and correlation of investment categories. We limited our review to major asset classes—U.S. large-, mid- and small-cap stock managers, international and global stock strategies—and alternative investments, including hedge funds, commodities and real estate investments.

Statistics were calculated before advisory fees. Where possible, we considered category-weighted average performance over ten-year periods.

The results? Large-core had the highest return, at +7.14 percent; mid-cap core, at +6.89 percent and small-cap core, at +5.41 percent. Domestic real estate strategies performed well, at +6.17 percent, the result of attractive REIT dividends compared to falling interest rates. Hedge funds and hedge funds-of-funds returned +4.20 percent and +2.05 percent, respectively.

To simplify conversations about risk tolerance, we ask clients to consider the tummy factor.

Often, we meet with disenchanted investors who have been sold large foreign markets exposure. Those non-U.S. categories, though, landed in the bottom half of our return sample—international developed markets, +4.62 percent; global allocation, +4.20 percent; and emerging markets, +2.75 percent. Hence their disenchantment!

To simplify conversations about risk tolerance, we ask clients to consider the tummy factor, or tolerance for fluctuation in their investments’ market value. The past ten years have amply tested this tummy factor. For example, the large core category produced the highest annualized return (+7.14 percent) with a 16.3 percent standard deviation of return, a measure of volatility.

Few categories in our review displayed a lower volatility compared to large-core. Consider that these other categories produced lesser returns. Our point: Portfolios with broad-category diversification didn’t result in less volatility for investors.

There were exceptions: International developed market strategies produced the return cited above, with only a 5.6 percent standard deviation. And, hedge funds, ridiculed lately for meager returns, as a group have, true to their name, hedged out much volatility, with a 6.85 percent and 4.83 percent standard deviation for the hedge funds and funds-of-funds, respectively.

An oft-cited benefit of multi-asset class portfolios is the fact that investment categories perform in disparate fashions—one may rise while another falls—producing diversification. Correlation of returns is a statistical measure that captures the extent of interdependence of investment performance. When asset-class returns move in the same direction, their statistical correlation moves toward +1.0. Conversely, divergent returns’ correlations move toward -1.0.

Our examination showed that the interconnection between most categories here has been rising. Correlations between various equity categories and hedge funds are all 0.8 or above. Real estate is a bit lower at 0.77; funds of hedge funds reported a correlation of 0.64. Commodities were the best diversifier with the lowest correlation to all categories.

With investment categories tracking similar return patterns, reporting mostly higher volatilities and lower returns than U.S. large stocks, we therefore remain dubious of multi-asset-class strategies.

This article is not intended as investment, legal, accounting or tax advice. Any opinions, recommendations or indications of past performance contained in this article may be subject to risks and uncertainties beyond the control of Hallmark Capital Management, Inc. (Hallmark) and are no guarantee of future returns. Hallmark does not guarantee or certify the accuracy, completeness or timeliness of the information presented in this article. Hallmark is an investment advisor registered with the U.S. Securities and Exchange Commission. Registration with the SEC does not imply that Hallmark or any individual providing investment advisory services on behalf of Hallmark possesses a certain level of skill or training. © Hallmark Capital Management, Inc. All rights reserved.

This article was originally published in the August/September 2016 issue of Worth.