Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Asset Diversification Won’t Be Enough In The Next Recession

Stock-Markets / Recession 2018 Jun 05, 2017 - 04:57 PM GMT

By: John_Mauldin

Stock-Markets

Investment diversification may not help in the next global recession. Diversifying among asset classes will simply be diversifying your losses.

The entire world is getting ready to enter a period that I call the “Great Reset.” It is a period of enormous and unpredictable volatility in all asset classes. What do we do?

I think that the answer lies in diversifying among trading strategies that are not correlated to each other. And using managers who have a mandate to invest in any asset class their models tell them to.


Active management will make a difference

The theory behind active management is that managers can make a difference by using their superior analysis and systems. They then put only the best stocks in their portfolios. And they might even short the bad ones.

The manager’s edge is the ability to decide which companies have positive profit performance and which have problems.

If you were particularly good, from the 1980s and through the first decade of the 2000s, you created a “long-short hedge fund.” This is where you went “long” the stocks you thought were the better ones. And you would “short” those you thought would fall in value.

There were many different ways to do this. But they all depended on a manager that had an “edge”—some insight into the true value of stocks.

But in the past few years, that edge seems to have gone away. Money has been flying out of many of these funds. And not just the long-short funds.

Active managers in the long-only space have been doing just as badly as their hedge fund brethren. Only about 10% of large-company mutual funds did better than the Vanguard 500 Index Fund in the last five years.

Not surprisingly, a growing number of asset managers actively trade ETFs using their own proprietary systems. Globally, there is about $3.8 trillion in ETFs today. There are almost 2,000 ETFs in the US alone. And according to ETFGI, there are 4,874 ETFs globally. Assets in ETFs have shot up from $807 billion in 2007 to $4 trillion today.

No matter what asset you want, there’s now an ETF for it.

Use multiple asset managers with different styles

I use four active ETF asset managers/traders. Each has a very different style. That approach likely gives me much less volatility than each manager’s system would face by itself.

Part of my edge is that I have been in the “manager of managers” business for more than 25 years. I have looked at hundreds of investment managers and strategies. That has actually been my day job when I’m not writing.

So when a manager explains his system to me, I can “see” how it fits with those of other managers. I can grasp if it is truly different from the others. And I can decide if it would add any benefit to my total mix.

I’ve also learned that having more than four managers does not improve overall performance. It merely makes it more complex and expensive.

I believe passive investment strategies will come under severe pressure in the coming years. Many investors have their “core” portfolios in these passive strategies.

If you are prepared to ride out another 2001–2002 or 2008–2009 and then go through what I think will be an even longer and weaker recovery (until the debt issue is resolved), then stick with your passive strategies.

But there are other options that can see you through.

Get a Bird’s-Eye View of the Economy with John Mauldin’s Thoughts from the Frontline

This wildly popular newsletter by celebrated economic commentator, John Mauldin, is a must-read for informed investors who want to go beyond the mainstream media hype and find out about the trends and traps to watch out for. Join hundreds of thousands of fans worldwide, as John uncovers macroeconomic truths in Thoughts from the Frontline. Get it free in your inbox every Monday.

John Mauldin Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in