The financial landscape has delivered a stark lesson: the old playbooks are being rewritten.
Years of relentless American equity dominance have given way to a turbulent era marked by trade conflicts and unsettling market swings. This has prompted in turn a long-awaited shift that rewards those who embraced diversification.
Spreading risk across various assets has always been common wisdom, but the relentless ascent of US stocks seemed to render that sort of strategy obsolete. Now, the S&P 500’s struggle to maintain its footing brings us back to this approach.
Treasury bonds, gold, and corporate debt have emerged as leaders in this new reality. One exchange-traded fund, RPAR, which strategically allocates investments across diverse asset classes, has significantly outperformed the S&P 500. This reversal of fortune is vindicating for those who still championed diversification even in the face of relentless US equity gains.
But the question remains: is this a fleeting trend, or a more profound shift?
Historical data indicates these secular trends often extend beyond a single quarter. One model, which allocates funds across major assets, that consistently underperformed the US large-cap index for over a decade… is now poised for its best relative return since inception.
The ETF revolution has democratized access to alternative trades, providing diversification proponents with new avenues. With US households heavily invested in stocks, it’s hard to deny the appeal of spreading bets across other asset classes. This shift is evident in the recent performance of once-dormant assets like long-dated treasuries, which for instance have experienced a resurgence, driven by haven demand and concerns about US economic growth.
The 60/40 strategy—allocating 60% to stocks and 40% to bonds—has proven effective in providing portfolio protection. Gold is another traditional haven reaching record highs. Even more complex strategies, like quantitative models and options-based approaches, are outperforming the simple buy-and-hold.
Which is to say, as portfolio managers are now noting, diversification has delivered its promised benefit during a period of turmoil. Institutional investors are responding, with money managers reducing their exposure to US equities and increasing allocations to European and emerging markets. Meanwhile, retail investors continue to buy the dip, particularly in technology stocks, demonstrating a psychological attachment to past gains.
In a market characterized by stretched valuations, persistent tech concentration, and an uncertain growth outlook, a diversified approach is essential. Strategies like “portable alpha,” which leverage derivatives to diversify across assets, are gaining traction.
Ultimately, it’s clear: in an unpredictable market, diversification is essential. No one can say what the future holds, but for now we’re taking the opportunity to cover our bases.
That’s what Value Authority does around here. We chase stocks that pay dividends. They aren’t sexy. They’re slow. We tune out the headline hysteria and go for the long haul. Right now we’ve captured a little more than 6% a year . . . try to find that in the bond market these days!