I’ve long believed in a mix of stocks, bonds and alternatives and continue to do so as a means of managing the entire cycle. I think Asness’ quote reminds us that some holdings are there to help the overall portfolio maybe by helping manage volatility.
Within a portfolio some holding must be the best performer. In a bull market for equities you would hope it would be one of your equity holdings; a fund or individual stock. I am one who believes in maintaining a small exposure to gold with the caveat that if gold is the best performer in the portfolio then chances are things aren’t going very well elsewhere. But occasionally things aren’t going well elsewhere and gold is your best performer or some other type of diversifier is your best performer.
Yes it can be difficult to remember why you own some asset class while it is out of favor but of course every asset class rotates from out of favor or maybe simply underperforming whatever this year’s hot dot is, to back in favor and out again. For investors who don’t want to guess when some asset class or strategy will or won’t be the top performer then they probably should maintain exposure throughout the entire cycle.
This article was written by AdvisorShares ETF Strategist Roger Nusbaum.