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One Replacement for 60/40 Portfolios: 100/0

Paltry bond yields lead to search for solutions to hedge an all-risk portfolio, Man Group’s van Dooijeweert says.

One Replacement for 60/40 Portfolios: 100/0

Paltry bond yields lead to search for solutions to hedge an all-risk portfolio, Man Group’s van Dooijeweert says.

Pedestrians walk on Wall Street near the New York Stock Exchange.

Pedestrians walk on Wall Street near the New York Stock Exchange.

Photographer: Michael Nagle/Bloomberg
Pedestrians walk on Wall Street near the New York Stock Exchange.
Photographer: Michael Nagle/Bloomberg

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Barely-there yields in the bond market have led to a search for other strategies to diversify portfolios with assets that will cushion the blow from any future drop in stocks. Peter van Dooijeweert, managing director of multi-asset solutions at Man Solutions, a division of hedge-fund firm Man Group, joined the latest episode of the “What Goes Up” podcast and talked about some possible alternatives.

Some highlights of the conversation: 

“Do you go 100% risk-on, and then what? How do you deal with a crash? ... And that's a little bit what we're looking at, what does it look like with 100% risk on? What are the tails? What are the crashes like? And what can you do to mitigate that crash risk? In our business, people have been trying to replicate bonds for decades. And so they would take a bunch of positive-carry stuff and staple it together, glue it in a basket, take a bunch of tail hedges and interesting kind of defensive-looking things and glue that together, mush it all together and make this Frankenstein that was going to be a bond replacement. And you can tell that I'm not a strong advocate of doing that kind of stuff. These days, though, if I start with a construct that bonds don't make anything, then maybe the construct for me is just to build something that's risk-mitigating right and try to reduce the drag. And then that's the first step to having an all-risk portfolio.”

Mentioned in this podcast:
In New 60/40 Portfolio, Riskier Hedges Are Displacing U.S. Debt
Got Lucky, Got It Right: How Newbie Stock Jocks Beat the Market