Just Put It All Into...

During the worst of the Financial Crisis, a possibly frustrated reader left a comment along the lines of just put it all in Hussman and forget about it. He was referring to one of the mutual funds managed by John Hussman. He didn't specify which of the two (I believe that is the correct number) funds that Hussman managed back then. At the time, those funds were having success because of Hussman's generally defensive portfolio posture. 

The funds did well in the Financial Crisis and they did well in 2022 but from 2009 onward, one of his two long standing funds has a negative annual growth rate and the one with a positive growth rate was less than 1/3 of a plain vanilla 60/40 portfolio. The funds might play a role in a diversified portfolio but hard to peg either one as a single portfolio solution. 

The idea of a single fund, all-weather portfolio is intellectually appealing even if it probably doesn't exist. Let drill down a little on one such fund that I think puts itself out there as a single fund, all-weather portfolio. Let's leave names out for now but here is 20 years, the fund in question is the yellow line, the blue line is the S&P 500 and the red line is a 60/40 portfolio. 

 

For 20 years, holy cow, the numbers look great. Put it all in the yellow line and forget about then?

 

The ten year numbers tell a much different story due, I think, to the fund's large allocation to gold. At times a large allocation to gold will really help and at other times, it will really be a drag on returns. 

The fund does have an allocation to equities that I'd say is close to "normal" in the context of 60/40.  

Anytime I talk about letting markets work for you over the long term and the role that an adequate savings rate plays in financial success, I will usually caveat that with assuming a proper asset allocation. When you use some sort of multi-asset fund, there is a risk that the other assets in the fund, the non-equity holdings, will undercut or offset the ergodicity that you get from just letting your equities grow...while maintaining a proper asset allocation. 

Ten years is a reasonable time period but someone who bought in 2012 based on the previous ten years really got left behind. Not everyone needs to keep up for potentially several different reasons which reiterates the importance of knowing what you actually need and how to manage to what you actually need.

Yes I take an active approach, not frequent trading but definitely active, to dialing up or dialing down the various things I use for non-equity portfolio exposure. If you target 65% in equities via a simple equity index fund, then that fund will get the CAGRs you see above (or close to it). Gold was mostly in a downtrend from mid-2011 to early 2016. If the multi-asset fund continued to buy gold all the way down to maintain some sort of target percentage in the metal, then yeah, that might really take a dent out of the equity rally that occurred during most of that period. 

I can see that effect being an issue in many multi-asset funds, maintaining a percentage in something that is in a long term downtrend. This is why I'd rather build the assets myself, usuallly using single asset funds or individual issues and blending them with smaller allocations to the various things we've been talking about like managed futures, volatility, certain long short and so on. 

It doesn't look like we're going to get to an extreme panic level for the S&P 500 on this event but as an example, with equities down 40%, you don't need as much protection from gold as when the stock market is at all time highs combined with sky high valuations. Down 30% or 40% is probably a time to have less protection, you don't need as much protection after a large decline. But down 40% and the multi-asset fund we've been talking about is still going to be pretty close to 25% in precious metals.