Brexit Reaction Underscores Diversification Benefits

pie chart multi colorLast Friday and Monday were two consecutive days of emotionally driven selling in most global markets due to the result of the Brexit vote. We thought it might be interesting to take a closer look at how our clients’ portfolios fared over those two days.

What we observed is that, while our portfolios were down, they were not down nearly as much as a portfolio made up of exclusively stocks or a blend of global investment grade bonds and stocks.

  • Asset classes that increased in value: Managed Futures, High Quality Bonds, Inflation Protected Bonds, and Absolute Return.
  • Asset classes that fell in value: Global Equities, Real Estate Investment Trusts, Commodities and High Yield Bonds.

We estimate a traditional 60% global stocks/40% global bonds portfolio fell about 4%. In contrast, a KFG 60/40 with its eight asset classes fell only around 2%. Managed Futures was the top performer over the two day selloff, up over 4.5%. The worst performer was Global Equities, down over 7%.

Interestingly and almost predictably,  global stock markets experienced a rebound on Tuesday as investors’ fears subsided

The performance of your portfolios during this time of market stress and volatility underscores the value of diversification using equity-like asset classes such as managed futures and absolute return. We will continue to monitor your portfolios for opportunities to rebalance by selling asset classes that have increased in value and buying more of those that have been beaten down according to our tolerance bands.

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