bps and pieces

We're "halfway there" through 2022 and, like Bon Jovi, many investors feel like they are living on a prayer. 

It's been the worst first half of the year in my lifetime for the classic 60/40 portfolio, down nearly 20 percent year-to-date. 

In the rare occurrences when 60/40 portfolios are in drawdowns of this magnitude, it typically means that stocks are down significantly more and bonds are somewhat hanging in there. Not the case this year, with the Bloomberg U.S. Aggregate Bond Index down double digits this year as well.

You'd be forgiven for thinking that "market beta" - by which I mean traditional stock and bond market exposure - is broken in light of the current backdrop. But I would argue they are merely bent, not broken. That said, investors have more options than ever before to break free from relying on traditional beta alone and can instead augment them with an ensemble of valuable, diversifying strategies. But I digress...

The question often comes up from readers and prospective clients of Savant:

What do alternatives look like in practice for a typical client portfolio at your firm? 

While there is no such thing as a "typical" client portfolio, there are some common threads as it relates to the types of alternative investments we incorporate across the households we serve.

With that in mind, our investment team at Savant has authored a hot-off-the-press white paper on alternative investments that is available to download on our website. 

As I publish this, I was supposed to be on a plane to Ft. Lauderdale for the Wealth Management EDGE/Inside ETFs conference. Unfortunately, Covid had other plans and I am now stuck at home. Seems like we're all destined to get our turn sooner or later...

Regardless, I wasn't about to allow a little Covid to interrupt my streak of (now) 23 consecutive monthly Paper Trail posts! So, without further ado...

If you're a regular reader of The Paper Trail, you know by now that I am Kai Wu's #1 fanboy. Kai is the founder & Chief Investment Officer for Sparkline Capital and his papers are a staple in my monthly research compendium. He is prolific when it comes to applying novel approaches (unique data sets, machine learning) to classic investment frameworks (i.e. value investing) in areas where the old rules may no longer apply. Think intangible assets and crypto/Web3. 

His latest published work is titled Investing in Innovation and it was so good I just couldn't wait until the end of the month to highlight it. 

2021 was a banner year for private equity: new records in deal value and exits, the second-best fund-raising year ever, and a continuation of the strong returns that have outpaced other asset classes. 

But can the party in private markets continue in 2022 and beyond? It's definitely a question worth examining with private markets likely to play a more substantial role in the portfolios of high-net-worth investors in the years to come. 

In addition to private equity, this month's installment of The Paper Trail digs into:

• Litigation Finance
• Value in Japanese Equities
• The Upward Migration of ESG Ratings
• Information in Municipal Bond Yields
• The Momentum Factor's Woes
• And much, much more!

As alternative investments continue to broaden in their accessibility and play a more meaningful role in the portfolios of the future for individual investors, financial advisors will by necessity need to develop their competencies in this arena.

It is with that notion in mind that I am proud to announce I will be serving on the advisory council of UniFi by CAIA™, a just-announced learning platform dedicated to educating the private wealth management industry on alternative investments.

There's no sugar coating it - it's been a brutal start to the year for bonds. The Bloomberg U.S. Aggregate Bond Index is down nearly 7 percent year-to-date.

The conventional wisdom of building a balanced portfolio is being challenged before our very eyes. If there was ever an environment to demonstrate the value of diversifying your diversifiers, this is it.

Yesterday marked the two-year anniversary of the stock market bottom of 2020. 

It's remarkable how vastly different the financial market landscape looks today than it did at the same point two years ago.

Frictions can be thought of as anything standing between an investor and their returns. Some frictions we are in control of and others we are not. Taxes, costs, and inflation all come to mind as possible frictions, but perhaps one we face as investors is the deluge of distractions that can cause us to trip over our own two feet.

A portfolio that works great on a spreadsheet is of no use if the end recipient lacks the confidence, understanding, and/or patience to stick with it until it bears fruit.

Truly diversifying alternative investments can be a valuable arrow in the allocator's quiver in meeting investor objectives and delivering successful outcomes. That being said, the experience of owning them can be difficult at times. 

This week was a reminder of how humbling markets can be. I don't think anyone went to bed Wednesday night after seeing the alerts on their phones about Russia's invasion and Dow futures being down ~800 points and thought stocks would finish in positive territory by Thursday's close. Nor did they think it would be followed by a strong rally on Friday going into the weekend. Investing is hard.

An investment strategy predicated on predictions and activity is almost certain to fall short over time to one based on preparation and temperament. And that is what The Paper Trail is all about - sharing valuable third-party insights with investors to help them prepare and improve their odds of long-term investment success.

One unfortunate downside of all the time spent writing my own book was that the time I spent reading other books effectively came to a screeching halt. Sure, I managed to read a handful from start to finish but nothing like the pace I was at prior to starting my own endeavor. 

Now that I have my weekends back, I plan on changing that in 2022. And my Amazon wish list is full of some intriguing new investing/finance/business books that will eventually be making their way to my doorstep.