It must be official—a long article appeared in the Wall Street Journal today, replete with correlation graphics, that discussed the issues the strategic asset allocation has had over the past year or so.
The base problem is that diversification did not help as much as it typically has. We feel there is some merit in strategic asset allocation—at least it is a systematic approach to building a portfolio and then rebalancing to the target weights periodically. It just may not be the optimal approach for the real world, where correlations are notoriously unstable. A well-executed tactical approach (like our Systematic RS Global Macro portfolio), with a mixed universe of high-volatility and low-volatility assets is, we think, more likely to get the job done.
This article is a must read for “recovering asset-allocationists.”
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