Exit from Wonderland
Why have sailing strategies over-performed and rowing strategies underperformed in recent years? Are there reasons to expect anything different in the next few years? How should equities be weighted in portfolios and should alternatives be included?
The financial world is operating just as the Fed has intended. With good intentions, the Fed used 0% interest rates and a $4.5 trillion QE bond-buying program to stimulate the economy and the stock market. The Fed’s actions intentionally distorted market relationships, which alter the effectiveness of skill-based and value-oriented investment strategies. The repeating pattern—and unprecedentedly long era—of interest-rate and bond-market interventions now has many investors capitulating to a new world outlook.
Catalysts and conditions are ripening for a reversal of recent patterns. The catalysts were not on the near horizon even a year or two ago. Portfolio diversification and risk hedging are more important now than they have been in quite a while.