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Advisors routinely assume the benefits from diversifying across equity asset sub-classes and between equities and bonds. But they ignore the even greater benefit from diversifying among categories of bonds.

Always clever, Brian Portnoy, recently wrote Diversification Means Always Having To Say You're Sorry.

Ben Hunt doubled down with:

  • It is a fact that value has waaay underperformed the S&P 500.
  • It is a fact that trend has waaay underperformed the S&P 500.
  • It is a fact that quality has waaay underperformed the S&P 500.
  • It is a fact that emerging markets have waaay underperformed the S&P 500.
  • It is a fact that real assets have waaay underperformed the S&P 500.
  • It is a fact that hedge funds have waaay underperformed the S&P 500.

Everything has underperformed the S&P 500. Hence diversification has been a multi-year fail. Expressed in one graph, the S&P 500 versus an equal-weighting of all the major asset classes: U.S. and non-U.S. stocks, U.S. and non-U.S. bonds, real-estate, commodities, and cash.1

After five years of this advisors are tired of talking about it and investors are tired of listening. One could build a strong case for a diversification rally. But for now, diversification hasn’t worked.

Except for bonds.

Since President Trump signed the $1.5 trillion tax-cut package December 21, 2017, 10-year Treasury yields have climbed roughly 70 basis points.


10-Year Treasury Constant Maturity Rate (DGS10) Federal Reserve Bank of St. Louis