Here is a rather technical looking graph (courtesy of CF Miton). To simplify the orange line is meant to be predictor for economic growth in the US. The blue line measures the relative value of cyclical stocks (those that do well when the economy is booming) with defensive stocks (which do better when people think a recession is possible).
It is no surprise with the luxury of hindsight that the curves are roughly the same shape – you would expect people to be buying shares that benefit from economic growth if they are reading surveys and analysis that says there will be economic growth and so momentum (more buyers than sellers) will push the price of cyclical stocks up. Thus the relative value of cyclical stocks is higher in a growing economy.
The skill required of your chosen fund managers is to decide when to change the mix of shares ahead of a change in sentiment. This mix of defensive and cyclical shares is very important and one that is often not picked up in the asset allocation models of advisers. For example in an income portfolio, it is possible that the search for dividends will have resulted in a heavy bias to defensive stocks, like tobacco and pharmaceutical companies (people still buy fags and pills, possibly even more, in a recession).
If you think of diversification in the context of gardening (NotHarry is a keen gardener), you will realise that you need to have plants and trees that cope with different weather, grow at different rates, flower in different colours, have different shaped and coloured leaves, will survive on poor and rich soil, acidic and alkali soils, are eatable and are not and so on. An experienced gardener also knows how to combine things to get an overall pleasing effect, with some insurance policies! Even after diversifying at the high level, say planting apple trees and blackcurrant bushes, the gardener will invest in more than one species to further reduce the chance of failure. Gardeners would make great asset managers!
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