“For the first time in several years, it is possible now to put together a well-diversified portfolio of assets and strategies that are either outright cheap or at least fair value, an excellent silver lining to a year most investors would like to forget, wrote Ben Inker, co-head of GMO’s asset allocation team, in the firm’s fourth-quarter letter to investors.
“2022 was a very good year for value relative growth,” Inker said in the phone interview. “We still think the prospects for value relative to growth are really quite interesting.” “It’s a lot easier to own traditional assets today than it was last year,” Inker wrote. “A year ago, we had 28% in equities, 11% in credit, and 61% in alternatives,” he said in his letter. “Today, we have 44% in equities, 18% in credit, and 38% in alternatives.”
According to Inker’s letter, GMO’s ability “to shield our clients from some of the pain was very much driven by the extent to which we were able to move them out of traditional stocks and bonds and into the kind of liquid alternative strategies that had seemed woefully out of step over the last few years.”
Inker cautioned that “it’s still quite hard for us to evince enthusiasm for major markets that are trading at valuations much higher than historical norms.” The S&P 500 index, which tracks U.S. large-cap stocks, and global government bonds are “sadly both giant asset classes sitting in that camp,” according to his letter.Still, a rising number of assets around the world “really do look to be fair value or cheap even by pre-millennium standards,” according to Inker.