I wanted to do a quick experiment with a 60/40 portfolio. Can we get a similar result allocating 60% to some sort of fixed income sector and 40% to some sort of muted equity exposure. The first thing that came to mind was 60% into a convertible bond fund and 40% into a defined outcome "equity" ETF. For the period I studied, convert plus defined outcome was about 300 basis points short which surprised me, I thought it would be closer. I tried asking Copilot which fund or ETF is most correlated to the S&P 500 and it said CWB which is the first convertible fund I tried. I thought that was funny.
Portfolio 2 is interesting. It's had the same growth rate as plain vanilla 60/40 but with only 2/3 the volatility.
The first question might be whether Portfolio 2 just captures a low volatility effect. Short answer is no.
The point of this is just to underscore the importance of understanding not only what a fund owns but what the strategy, if there is one, is trying to achieve. We've used the example of long/short many times in this context. Some long/short funds are trying to offer equity beta, trying to outperform, some are absolute return/market neutral and a couple are essentially inverse funds.
Short post tonight.
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