Great ‘Bear Market’ in Diversification Haunts Wall Street Pros

-- They did everything right — spreading out bets far and wide across bonds and equities in case things went south. Now, after heeding Wall Street’s mantra to diversify for the long haul, these investors are watching with envy as the US stock rally leaves them in the dust yet again.Scholz’s SPD Suffers Record Rout in Germany’s EU Vote

Faber calls the last 15 years a “bear market in diversification.” His $54 million Cambria Global Asset Allocation ETF has trailed the S&P 500 in all but one year since its inception despite an annualized 5% gain. American stocks have been on a blistering run since the global financial crisis, outpacing almost everything in a period when bond returns were suppressed during the zero-rate era while international stocks languished under the weight of a strong dollar. Up 14% annually, the S&P 500’s gain is double that of stocks in developing countries and adds up to three times as large as investment-grade bonds.

“Diversification is your best friend on your worst day,” said David Kelly, chief global strategist at J.P. Morgan Asset Management. “The right asset allocation is a little bit like home insurance. You never know when you’re going to need it, but you should never feel comfortable not having it.” “The question everyone has is, does it make sense to diversify?” said Mayukh Poddar, senior portfolio manager at Altfest Personal Wealth Management. “A lot of people have become more focused on equity market returns in the post-Covid era.”

Inflation is likely to stay sticky, making bonds exposed at a time when the government ramps up Treasury supply to meet fiscal needs, according to David Rogal, a portfolio manager at BlackRock Inc.

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