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CIO Strategy BulletinArticle01 Jun 2024

Staying the Course: Allocating Portfolios for the Long-term

Even if you have a portfolio built upon a long-term investment plan, it can still end up overly concentrated if it deviates from the plan, perhaps via a lack of rebalancing. The bulk of our investor questions have tended to focus on short-term factors – election outcomes, geopolitical risks – and whether the stock market is too high for a particular moment in time. What so often gets neglected is the structural balance in a portfolio. A misaligned portfolio for the long run can potentially accumulate either excessive idiosyncratic risk or lost opportunities akin to enduring a bear market, if hidden beneath the surface over time.

Key Takeaways

  • The bulk of our investor questions have tended to focus on short-term factors – election outcomes, geopolitical risks – and whether the stock market is too high for a particular moment in time. What so often gets neglected is the structural balance in a portfolio. A misaligned portfolio for the long run can potentially accumulate either excessive idiosyncratic risk or lost opportunities akin to enduring a bear market, albeit hidden beneath the surface over time.
  • The US has led global equity returns for an unusually long streak of roughly 15 years. It’s been concentrated in a small number of US tech-related shares. There’s no good reason to doubt the immediate fundamental strength of potential innovations such as AI. We also can’t tell how far the bull market in these shares has already progressed. History shows the S&P 500’s top ten constituents by capitalization each year underperformed the broader market in subsequent years (data from 1991-2023).
  • Rather than calling for a wholesale shift from US equities to cheaper markets, our approach calls for considering appropriately sized exposure to both. The relative sizes of our long term allocations will reflect the divergence in valuations, allocating somewhat less to expensive markets and somewhat more to cheaper ones.

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