- Risk has been rewarded
- Give your portfolio a safety rope
Arguing the counterfactual doesn’t seem like something investors should do, but if last year hadn’t been such a romp for the US stock market, the Investors’ Chronicle Alpha strategic asset allocation (SAA) models would arguably look even more impressive. As it turns out, the stunning gains made by the S&P 500 (taking in the 13 months from the end of December 2022 the annualised total return for a sterling investor was 21.2 per cent) put the US index ahead of our cautious, balanced, moderate risk and adventurous strategies, even on a ‘risk-adjusted’ basis.
Our systems, however, are designed to shield investors from the worst falls when the stock market does badly. While negative scenarios would clearly drag on our absolute performance, too, the diversification on offer from gold, bonds and US dollar exposure would act as a cushion. Immediately, the caveat to seize upon, is that we don’t have to look far back – to 2022 – for an example of a spike in the positive correlation between share and bond prices. Nevertheless, with yields now at a higher base level, there is greater scope for quality government bonds to act as shock absorber, albeit if inflation unexpectedly gathers momentum once more that might not be the case.