  Risk-only investment strategies have been growing in popularity as
traditional in- vestment strategies have fallen short of return targets over
the last decade. However, risk-based investors should be aware of four things.
First, theoretical considerations and empirical studies show that apparently
dictinct risk-based investment strategies are manifestations of a single
effect. Second, turnover and associated transaction costs can be a substantial
drag on return. Third, capital diversification benefits may be reduced. Fourth,
there is an apparent connection between performance and risk diversification.
To analyze risk diversification benefits in a consistent way, we introduce the
Risk Diversification Index (RDI) which measures risk concentrations and
complements the Herfindahl-Herschman Index (HHI) for capital concentrations.
