By: RCM Alternatives
Harvest Exchange
March 25, 2017
The Alternative Callan Periodic Table of Investment Returns
Our main issues are: it doesn’t include Managed Futures and the periodic table/quilt doesn’t show the magnitude of the moves all that well
There’s no argument from the financial community that diversification is needed in your long term investment strategy. The degree of diversification and how much diversification, however, is very much up for debate. We don’t think there will ever be a general consensus on this, and for good reason. Alternative Investment managers can’t even agree on how much investors should allocate to their slice of the pie, partially because you have to first determine what you want out of your diversification. Everyone wants something different out of their diversification and if someone tells you there’s a one size fits all approach, you can usually run the other way.
There’s no better evidence of the necessity of diversification than the Callan Periodic Table of Investment Returns that makes the rounds each year.
Or as Ben Carlson of “A Wealth of Common Sense Blog,” calls it, the asset class quilt.
It shouldn’t be shocking to know that we’ve discussed this chart multiple times (here and here). Our main issues are:
1) it doesn’t include Managed Futures / Global Macro – or really any other alternative investment. Here’s an ‘Alternative’ version that fixes that:
<html><body><img alt="rcm-alternatives_asset_classes_blocks_2017" class="wp-image-21088 aligncenter" height="640" sizes="(max-width: 989px) 100vw, 989px" src="http://hvst.co/2n34iqN" srcset="http://hvst.co/2n34c2d 1730w, http://hvst.co/2n370wv 300w, http://hvst.co/2mAPWBE 768w, http://hvst.co/2mAMiI6 1024w" width="989"/></body></html>
Large Cap = S&P 500
Small Cap = Russell 2000
Intl Stocks = MSCI EAFE
Emerging Markets = MSCI Emerging Markets
REIT = FTSE NAREIT All Equity Index
HG Bond = Barclay’s U.S. Aggregate Bond Index
HY Bond =BoAML US High Yield Master II
Cash= 3 Month T Bill Rate
Managed Futures = SG CTA Index
Hedge Funds = Hedge Fund Strategy QAI
Commodities =Bloomberg Commodity Index
AA = Asset Allocation Portfolio
(15% Large Cap, 15% Intl Stocks, 10% Small Cap, 10% Emerging Markets, 10% REIT, 40% HG Bond)
2) The periodic table/quilt doesn’t show the magnitude of the moves all that well (which really is the most important part of the chart in our opinion). Coming in fourth place in a year while also being down -36.4% doesn’t truly explain how much you’re really losing from your portfolio. So, we did another chart adding in the magnitude of the moves to reflect just how large some of those asset classes move year to year.