Traditional 60/40 Balanced Portfolios Have Had The Stuffing Knocked Out Of Them Since Last Weeks Election
This year (2016) to date, the total return of a balanced 60% (All Country World Index, ACWI ETF) equity and 40% (Canadian Bond Index, XBB ETF) portfolio, after fees and costs (according to Bloomberg TRA, daily basis data) is 2.53%. Last week, prior to the election it was 4.58%.
Bond market volatility for one : US government 10 year bond yields jumped close to 1/2% (and Canadian bond yields were not far behind). At the same time emerging market equity prices (EEM ETF) have fallen over 7.5% in the same time frame.
If you are fully invested in a traditional 60/40 portfolio you may have seen a similar swing in your portfolio.
How do you avoid these swings?
Diversification into non-correlated assets: in last Friday's blog, I talked about Canadian high yield and/or a higher allocation to cash and money market assets (under-weight exposure to more potentially volatile emerging markets).
Adding a more tactical approach to portfolio management has reduced our and our client portfolio swings to 1/4 to 1/2% over this same period, certainly better than a 2% swing, unless you don't mind that kind of thing.
The point is that there is an alternative to the traditional standard, but it is like comparing apples to oranges: traditional advice (put it in place and "let it ride") to portfolio management (where the portfolio managers are continuously researching the best ways to lower volatility and maximize returns).
We will talk about this and other aspects of financial markets, the global economy and wealth management with our clients on our weekly webinar today.
The recorded version will be available on our website at or about 5pm EST today. Feel free to have a listen:
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist