GLOBAL - Pension funds' continued preference for identifiable asset pairs - emerging vs. developed, core vs. peripheral - shows they are still in crisis mode and consequently still driven by fear and macroeconomic myopia, according to Standard Life Investments (SLI).

The fund manager suggested the binary either/or approach to asset classes stemmed from a combination of fear and herding instinct in response to the financial crisis.

The result in the first half of this year has been to strengthen the correlation across countries, assets and sectors as emotion - often posing as a rational response to uncertainty - influenced short-term investor behaviour, it said.

However, for long-term investors, the herding instinct presented a significant opportunity to exploit a multi-speed market, it added.

The upset to recovery from the Japanese earthquake, energy price increases and the euro-zone debt crisis indicated structurally slow growth amid continued deleveraging.

Investors taking the long view can arbitrage what SLI chief executive Keith Skeoch described as a "distinct lack of a policy consensus".

An SLI report said: "Diversification may have been difficult over the last few quarters, but differentiation is likely to be rewarded over the next couple of years as investors start to recognise the multi-speed nature of the 'new normal' environment.

"Country analysis should become a much more important factor in a world where structural rigidities, policy decisions and divergences in economic growth and corporate earnings streams are becoming more significant."

The main variable will be how much risk investors are willing to tolerate within their portfolios.

Real estate and corporate bonds offer an attractive risk/return trade-off - where sustainable yield as a broad bias within portfolios will continue to work amid broadly flat capital returns.

High-yield debt likewise provides relatively strong income opportunities compared with forecast low default rates for other asset classes in 2011-12, SLI said.