Alternative investments can feel like a separate world from the rest of investing. The term evokes everything from hedge funds to fine art to a myriad of things in between. But as anyone who’s included REITs in a client’s income portfolio can likely tell you, the reality is a bit grayer than that.
That gray area is the sweet spot of Phil Huber’s recent book, The Allocator’s Edge. In fact, he implores readers to “embrace the gray” of the alternative investment world in the book’s first section, as he details the many shades of gray that exist.
Solving 60/40
We’ve spent quite a bit of time looking at the cases for and against the 60/40 portfolio. (Consider this, and this, or this, to mention a few.) While this allocation has performed well for the last several decades, past performance does not indicate future results. In fact, when taken as a whole, past performance is a bit bleaker than recent history would suggest.
In the book, Huber points to research from GMO, which cites several periods where real returns for a 60/40 portfolio were flat or negative. Two of the biggest risk factors are, unsurprisingly, two things we’re grappling with right now: inefficacy of bonds and inflation.
Huber spends time discussing why bonds are no longer an effective hedge for stocks: “It’s worth taking a step back and refreshing ourselves on why bonds tend to do well during equity drawdowns in the first place. When the economy is on shaky ground and…
