Asset Allocation Strategy
With last year’s Bridesmaid (REITs) having laid an egg, the long-term “alpha” of the Bridesmaid portfolio narrowed to +3.7% from a bit over +5% (annualized) when we first published this study more than a decade ago.
In the extreme case where one possesses no other information beyond last year’s total returns, the best single-asset strategy has been to buy the second-best performer (the “Bridesmaid”) and hold it for the next twelve months in hopes that the prior year’s momentum will carry it through. That approach has beaten the S&P 500 by 3.7% annualized over the past 48 years.
Diversified, multi-asset portfolios have been weak performers for many years. The ultra-flexible, macro hedge-fund manager represents one extreme of the asset allocation continuum. At the other extreme would be the passive holder of multiple asset classes. It’s been a tough three years for this breed, too.
Here are the historical annual performance results for the hypothetical Bridesmaid strategy.