Crisis-Proofing Your Portfolio

Crisis-proofing your portfolio

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7 Responses

  1. Avatar Bryan Matthew says:

    Hi Mike-interesting article! Although I think it is right that each crisis is different, one major lesson that I have learnt has been that for the last 30 years in which I have been investing, that although you really should be invested in all things it has tended to be the two ‘G’s that have been the most succesful defensive strategies at times like this- Gold and Gilts.

    If you look over the last 3 months Gold is up 14% whilst the best of the actively managed Global Government Bond funds are up 9% . Over the same period, the MSCI World Index is down close to 20% whilst the FTSE 100 is down close to 25%.

    My own experience has taught me that you do need something of everything (equities/bonds (junk, gilts and investment grade)/Infrastructure/ commercial property & gold)- the trick is finding the right asset allocation so that you do well in both bull and bear markets. Tricky!

    • Mike Rawson Mike Rawson says:

      Hi Bryan,

      The article is clear that the bond/stock correlation was positive until 20 years ago, and will likely revert once interest rates rise. Gov bonds are safe but pay no interest, and corporate bonds look very unsafe to me. If I were to be buying bonds, I wouldn’t start with gilts as I already have more sterling exposure than I want. Gold is fine, but I think more people are buying it now than were buying 6 months ago.

      I don’t think there’s a static allocation that works best under all regimes, particularly in decumulation. You need to decide where you are, set a course and keep making adjustments. Accumulation is simpler – decide on a risk level and wait until you have enough money to retire (plus a margin of safety).

      I totally agree that things are tricky at the moment and are likely to remain so for some time.

      Cheers,

      Mike

  2. Avatar Al Cam says:

    Interesting paper.
    I had a not dissimilar long gilts/stock discussion only a couple of days ago at:
    https://ace-your-retirement.blogspot.com/2020/04/did-your-portfolio-survive-covid-19.html.
    Also, IIRC, you and Bryan have debated bonds before?

    • Mike Rawson Mike Rawson says:

      Nice link. Indeed we have – I think we must agree to disagree. I’d rather nobody owed me money at present as credit risk is clearly sky high. When you fear that a third of your stocks might go bust, you don’t feel like lending people your cash.

      I’m all for diversification, I just think that it’s more of a moving target than the industry would have you believe. I don’t think that any of the lazy portfolios were designed to deal with a pandemic-driven economic shutdown.

  3. Avatar Bryan Matthew says:

    Yes, I should explain that my argument for bonds is based on less than love for them as a particular asset class in themselves, but more on the fact that I believe that any serious investor should have money invested in all the major asset classes -ie, something of everything (even if you think at a given time that they hold little value)- so you should do ‘well’ in the good and bad times.

    Within my bond allocation (around 50% of my portfolio) I tend to split my money 50% Corporate Bonds, 25% High Yield and 25% Gilts -although gilts have done so well recently that my gilt allocation has risen beyond 40% so some rebalancing is now needed!

    I think Gilts are becoming closer to Gold in that there is no income yield (or very little) but they are excellant insurance (no UK government has defaulted on any gilts) and in this crisis (like the finanical one) people want return of money not return on money!

    Apart from rebalancing I avoid making any judgements on which asset classes will do well (as no one knows) so for example in the last 4 weeks infrastructure trusts that I hold (HICL & BBGI) have gone up by between 20-25%, whilst High Yield trusts like NCYF has rebounded by almost 90% over the same period: who knows!

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Crisis-Proofing Your Portfolio

by Mike Rawson time to read: 4 min
More in Crisis Alpha
Hawk and serpent
Hawk and Serpent

Today's post is about a paper on asset allocation called Hawk and Serpent - from Artemis Capital in Texas.

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