It’s About Risk Allocation, Not Capital Allocation by Meb Faber
Guests: Michael Philbrick, Adam Butler, and Rodrigo Gordillo. Mike, Adam, and Rodrigo run ReSolve Asset Management. Mike has over 20 years of experience in investment management, including 6 years as a Portfolio Manager. He is responsible for investment decisions, coaching, and strategic leadership, and has co-authored several whitepapers. Adam has 10 years of experience in investment management, including 7 years as a Portfolio Manager. He is primarily responsible for research efforts related to the management of investment portfolios. And Rodrigo has 10 years of experience in investment management. He’s responsible for investment decisions, business development, and has co-authored several whitepapers and research.
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Topics: Episode 17 starts with the guys from ReSolve discussing how they view asset allocation and top-down investing. They start with the global market portfolio which is the aggregate of what every investor in the world owns, yet interestingly, nearly no individual investor allocates this way. They then adjust the global market portfolio by striving for balance, specifically, risk parity. They discuss how leverage enables an investor to scale risk and target a specific volatility level, therein equalizing the portfolio. Risk parity gets you to start thinking about risk allocation instead of capital allocation. And this is helpful as “you’ve always got something killing it in your portfolio…and always got something killing you.” The topic then moves to valuation. The guys from ReSolve tell us how they see today’s market—near the peak of a cycle and expensive relative to history. What does this mean for returns over the next 10-20 years? They think 1-2% real. This leads to a discussion about the Permanent Portfolio and its pros and cons in various markets. Then Meb doesn’t miss the chance to bring up gold, as he suggests Canadians love their natural resources (ReSolve is based in Canada). Next, Meb asks the guys their thoughts on currencies. Here in the U.S., it’s rare that we factor currencies into our investing decisions, but it can be more of an issue for many non-U.S. investors. The conversation circles back to risk parity, this time in the context of bonds, and where yields might be going over the next 5-10 years. There’s plenty more, including managed futures, assorted risk premia, and an announcement from the ReSolve guys about a new service offering. What is it? Listen to episode #17 to find out.
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Links from the Episode:
- GestaltU blog
- ReSolve Asset Management
- Trading Front
- Adaptive Asset Allocation – Butler, Philbrick, and Gordillo
- “The Asset Allocation Debate” – Vanguard
- “Risk Parity Primer” – ReSolve
- ETFs May Actually Make Weak Players Weaker – Econompic Data
- This IS the Global Market Portfolio – Faber
Running Segment: “Things I find beautiful, useful or downright magical”:
- ReSolve – Bose QuietComfort Headphones, Natural Reader, and Open Source Programming
- Meb – Japanese TOTO Washlet
Transcript of Episode 17: