June 10, 2022

CAIS: Expanding the (Alternative) Universe

June 10, 2022 | Nicholas Reade | CAIS

We started the year with record highs in global equity markets and a general expectation that the U.S. Federal Reserve (the Fed) would hike interest rates to tame the multi-decade high rate of inflation. At the time, we believed that these conditions – along with rising correlations between stocks and bonds and low expected returns – warranted a reassessment of the appropriateness of the 60/40 stock/bond portfolio (60/40 portfolio). We also presented the case for the inclusion of alternative investments to seek to enhance return, diversify risk and supplement income.

Given the historically poor start to the year that stocks, bonds and the 60/40 portfolio have had – which we previously addressed – we believe it may be time for investors to expand their investment universe and learn more about alternative investments. This includes private equity and debt, hedge funds, real estate, digital assets and numerous other strategies.

As a reminder, it can be helpful to look at the past to get a sense of what to expect in the future, however, it’s also important to remember that past performance is not always a guarantee or indicator of future returns. To this end, the below chart shows the annualized risk and return for traditional investments like stocks and bonds, as well as the 60/40 portfolio.

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