For years, investors have relied on the concept of efficient markets to guide their investment portfolios. However, as we enter the era of digital finance, there is a growing recognition that tokenized assets may offer new opportunities for diversification and growth.
The efficient markets theory, popularized by Eugene Fama in the 1960s, laid the foundation for modern portfolio theory and index fund investing. While index funds have proven to be resilient in various market cycles, they are based on the assumption that investors always act rationally, a notion that has been challenged by behavioral psychologists.
Despite these challenges, index funds have become the default choice for managing pensions and retirement accounts, largely due to regulatory requirements and the emphasis on established assets with reliable data. However, this approach limits the universe of investable assets to a relatively small portion of the global market.
Tokenization, the process of representing real-world assets as digital tokens on a blockchain, has the potential to expand the range of investable assets and provide transparent, comparable data on their values. By tokenizing assets like real estate or oil leases, investors can access daily market-derived data that was previously unavailable.
This shift towards tokenization could have significant implications for global finance. Currently, alternative strategies make up a small percentage of most funds, but with the availability of new data, the remaining 80% of assets could be up for grabs. Investors would have the opportunity to diversify their portfolios beyond traditional equity and debt markets, leading to a more accurate assessment of global value.
While this transition won’t happen overnight, the widespread use of artificial intelligence and the increasing adoption of automated investment tools could accelerate the process. As fiduciaries and fund managers adapt to the new data and recognize the potential of tokenized assets, the parameters of what is considered “efficient” may expand.
It’s important to note that this shift will require time to build a wide portfolio of tokenized assets and establish a track record of daily information. However, once the data is available, change could occur rapidly. The upcoming EY Global Blockchain Summit will explore the role of digital assets in portfolios, providing further insights into this evolving landscape.
