Traditional  60/40 Portfolios Feeling Volatility In 2018

As I have mentioned in past blogs on a number of occasions, that the traditional 60% global equity and 40% fixed income portfolio may not be working as well it has historically.

The key reason is equity market volatility (as above) which has been significantly higher than it was in 2017.

Global equities, as measured by the All Country World Index ETF (ACWI), have returned less than 2% to date in 2018:

Meanwhile the Canadian Bond Index ETF (XBB) has returned a slightly negative return over this same period:

Combined, your traditional globally diversified and balanced 60/40 portfolio has returned approximately 1% thus far in 2018.

So once again, we can make the case for a less traditional asset class, which has so far this year outperformed most others: Canadian High Yield, which has returned +2.22% thus far in 2018:

High Rock's  founder Paul Tepsich is a specialist in Canadian High Yield (arguably one of the most knowledgeable in this particular asset class) and High Rock Clients, through our Fixed Income and Tactical models, are given some exposure to this asset class. The fund that High Rock manages for Scotiabank (AHY) returned almost 2.5% through June 30.

As well, unlike most passive 60/40 portfolio's, High Rock's tactical managerial style enables us to lower our portfolio risk factor by carrying higher levels of cash (cash equivalent assets, such as High Interest Savings Funds)  in periods when risk is high (as higher volatility levels tell us that we are in now) and deploy that cash when prices fall and values are significantly better. Over longer periods of time, this allows for smaller swings in portfolio value and better average compound annual returns for our clients.

The broader theme for investors has shifted in recent years to a more passive approach. I would suggest that this new era of volatility that we are entering into will demand a more tactical approach. High Rock's private clients are already there: Lower risk, stronger long-term returns and high returns per unit of risk taken. It is the way of the future.