
Areté Quarterly Q4 24 |
As I have noted several times in the past, business prospects for Areté are closely connected with the investment landscape. Shortly after introducing the All-Terrain allocation strategy in August 2021, interest rates started going up and the strategy not only avoided the considerable losses of the 60/40 benchmark, but posted modest gains in 2022 (see performance table on page 6).
This period demonstrated significant “proof of concept” for the All-Terrain strategy, especially as an antidote to the conventional “balanced” strategy.
While the All-Terrain strategy has underperformed its benchmark the last two years, that has only been due to the performance of stocks which have now reached historically extreme valuations.
As it turns out, other voices calling out with warnings for the 60/40 strategy have been getting louder lately. Notable among them is Harley Bassman who recently suggested the inverse correlation between stocks and bonds, upon which the 60/40 allocation depends, “may soon end as interest rate[s] near 5.0%”.
He cites higher discount rates, more competitive yields from bonds, and slower earnings growth (due to higher rates) as the three primary reasons.
I believe this is right and also serves as solid validation of the All-Terrain concept. While the weakness in bonds was the big problem with the 60/40 portfolio in 2022, the impending problem will be weakness in stocks. It’s very interesting that for the first time in years, short sellers are starting to talk about opportunities again.
In addition, with neither stocks nor bonds providing very attractive expected returns at the time, it will become increasingly important to manage risk by avoiding selloffs and by finding other noncorrelated and even inversely correlated assets to keep driving returns even when stocks and/or bonds aren’t able to.
In short, as Bassman described, it looks like we are finally entering an environment in which investors will really need to work to earn their returns. That should be good for Areté and pretty tough for most of the rest of the industry.
The statement package clients receive has a different look but contains mostly the same information. You will also notice a slightly different asset allocation chart in this publication.
Looking ahead, I think there is a good chance I will be able to produce all the same information for clients I did before, but it may take a little time to get there. That said, I am already starting to see how a number of my workflows will be substantially faster and easier than before.
If you have any questions about what I do, about the transition to Altruist, or just want to learn more about the All-Terrain strategy, please reach me at [email protected]. I look forward to it!
Thanks for your support!
David Robertson, CFA
CEO and founder, Areté Asset Management