"Is the All Seasons Portfolio strategy not working anymore?"
With an annual drawdown for such portfolios almost as bad as for the stock market YTD (S&P 500 currently being down 16% since 1 January, having briefly been below -20%), I am not surprised that I have been hearing this question more and more recently. Is this a bug or a feature?
The first seven months of 2022 can be illustrated by two major themes in terms of financial markets: a) significant underperformance of major asset classes such as stocks and bonds, and b) rising rates.
The latter constitutes one of two undiversifiable risks for investors, as when the cah rate rises, that impacts asset prices as returns of risky assets always compete with the return of cash.
In this article, we explore interest rate risk and how most major asset classes have correlated with the future cash rate expectations over the first seven months of 2022. We try to answer the question on if the All Seasons Portfolio strategy is broken, or if the playing field has been reset and that we can expect better performance ahead.