Portfolio Construction
New Rules of Diversification
Q3 2022
During the first half of 2022, equity markets tumbled around 20% from their peak, with losses on typical stock/ bond portfolios almost as large. More worryingly, this type of downturn may be unfamiliar to many younger investors: with inflation still high, there is little prospect of central banks riding to the market’s rescue. We assess the prospects for stock and bond markets after the H1 selloff, consider the impact of macroeconomic risks on a range of investments, and explore the use of diversifying investments to fortify portfolios.
Portfolio Construction
The Stock/Bond Correlation
Q2 2022
For the past two decades, the stock/bond correlation – a fundamental detriment of risk in traditional portfolios – has been consistently negative. However, this hasn’t always been the case, and a positive stock/bond correlation could reappear due to macroeconomic changes. In this article, we assess the broad implications this would have for investors and set out practical steps to prepare for such an outcome.
Asset Allocation
2022 Capital Market Assumptions for Major Asset Classes
Q1 2022
We update our estimates of medium-term (5- to 10-year) expected returns for major asset classes. We also include an analysis that attempts to reconcile ever-lower expected returns with ever-higher realized returns and suggests practical strategic steps to boost portfolio expected returns.
Portfolio Risk and Performance
Should Your Portfolio Protection Work Fast or Slow?
Q4 2022
2022’s drawdown provides a clear picture for the types of strategies can actually deliver in a “slow burn” market downturn. While some options-based strategies have generated positive returns, in many cases they have disappointed. In contrast, trend following strategies have generally posted very strong returns. Looking ahead, many of the macro conditions that have been advantageous to trend following are still in place—and have historically tended to persist.