The Impact of the New Regime on Portfolio Diversification: A Conversation with Sebastien Page
The new normal in the financial world is different, and it's important to understand the changes in the regime. Sebastien Page, Chief Investment Officer at T Rowe Price, provides insight into how the market has shifted and what it means for portfolio diversification. In this article, we'll discuss the implications of the new regime for asset allocation, the role of diversification, and the importance of considering alternative investment strategies.
Understanding the New Regime
The financial landscape has shifted, and Page asserts that we are in a new regime. This new environment is characterized by higher interest rates and greater government debt, which are different from prior periods. It's essential to recognize these changes and their potential impact on portfolio construction.
Rethinking Portfolio Diversification
Page emphasizes the importance of rethinking traditional portfolio diversification. In the past, stocks and bonds were considered as distinct asset classes for risk and safety. However, recent market events have shown that both asset classes can experience significant declines simultaneously. This calls for a more dynamic approach to diversification and the consideration of alternative sources of protection in specific market environments.
Enhancing Diversification
To enhance diversification, Page suggests allocating a portion of the bond portfolio to dynamic bond strategies or other alternatives. Similarly, a portion of the stock portfolio could be allocated to hedged equity strategies to protect against downside risk while preserving upside potential. By adding these components, the portfolio becomes better equipped to navigate various market conditions.
Challenges with Traditional Assets
The traditional role of treasuries as a safe asset is being questioned, especially in the context of potential interest rate shocks. The current environment presents challenges for traditional assets to fulfill their roles effectively. As a result, it's necessary to explore alternative investments and consider their role in a well-diversified portfolio.
The Role of Alternatives
Page acknowledges the role of alternative investments, such as private equity, real estate, and dynamic bond strategies. However, he highlights the need for careful selection and management of these alternative assets, as they may not necessarily offer a free lunch in terms of low volatility and high returns.
Looking Ahead
Despite the uncertainty in the market, a well-diversified portfolio remains a crucial element for long-term wealth accumulation and protection. While the future is unknowable, diversification enables investors to capitalize on market performance and mitigate random declines in specific assets or markets.
In Conclusion
The new regime has implications for portfolio diversification, and it's essential to adapt to the changing environment. By rethinking traditional approaches and considering alternative investment strategies, investors can enhance their diversification and better navigate current market conditions. Despite the challenges, a well-diversified portfolio remains a valuable tool for long-term financial success.
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I believe he is talking about having a portion of your stocks and another portion of your bonds in buffered ETFs
And I think that is what he meant by sleeves
Because that is how The Buffer, ETF companies present it
I agree with him and in my 6040 mix about 10% of the 60 is in buffered ETFs and on the bond side I have about half of the 40% into buffered ETFs
Are buffered ETFs are basically the S&P 500 with the And they buffer the downside by a percentage usually 15 or 20% depending upon what you pick
These are great, and there are no fees or commissions, other than the ER
Traditional relationships , well , however in the US we are having a very obvious untraditional politically intriguing rerun election cycle that is as worrisome as the last election cycle that became as unrealistic as looking at a majestic tree which in fact is ant and termite hollowed out ready to topple over from storm, wind, rain, or for no other reason than its own fragility and decay – dead neurotic , bureaucratic weight , abuse, and fraud.
He’s kind of a Mohammed El Elian type of guy….never a bull and his comments are somewhat obscure.
Thumbs Up for continuing the great content!
I do enjoy hearing what fund managers say… and what they do not say. The T Rowe Price global equity funds have not done very well at all and charge 1.1%/yr. The s&p500 etfs beat these funds and only charge 0.03%/yr. The most important investment risk is poor advice…
The $6 trillion "excess liquidity" is in checking and money market accounts because the Federal Reserve and deficit government transfers forced it there. It's can't be anywhere else BUT "there". As long as the Fed has an $8T balance sheet, there will be excess liquidity in the system. I know, people will argue that this has the potential to "go into" the stock market. But it doesn't. It can't. It just gets transferred from one checking or money market account to another in exchange for an undefined number of stock shares at higher and higher prices. The excess liquidity can stoke speculative psychology, but it won't go away until the Fed takes it away. The other way to remove excess liquidity is to diminish what "excess" means, usually through inflationary GDP expansion. We will see both a Fed balance sheet draw down AND inflationary GDP expansion. Both contribute to the feeling of consumers feeling pain, but in very different ways.
Hi Consuelo – Happy New Year from Italy to you and Wealthtrack Team! So appreciated your excellent interview selections and clarity!
Thanks, WealthTrack; it makes me smile when one of your new videos pops up in my feed.
Why is he shouting? I had to turn it off. Ugh!
Very good program Consuelo , keep up the informative program 🙂
What worked in 2022 when stocks and bonds went down together – a short term Treasuries and CD ladder, using 1-6 months maturities. Plus Vanguard federal money market This strategy was a great diversifier to stocks and bond funds which became highly correlated when interest rates went up, It provided measly returns and stability of principal, but it let investors sleep well at night to ride out the storm.
Factor and manger selection risk likely don’t return the needed return or reduced risk to overcome the fees. Boring investing confirmed by watching this episode.
What is a 10% "sleeve" in a vintage?
as soon as he said those hedging strategies depends on finding good managers, it turned me off. Better just to stay diversified in index funds. I just don't feel I learned much from this episode.
Sebastien is a permabear in a new bull market, which means he is confused as hell.
Another great interview Consuelo, I love the clarity of your questions in unpacking Seb's world view.
He sounds like Dr. Nick from the Simpsons
Being vague reduces accountability
Happy New Year, Consuelo and team! I’ve been watching the show for what feels like over a decade. It’s part of my weekend routine. Thanks for your great work!
Thank you for this great interview!
This guy seems annoying and confused.
First, he shouts rather than speaks; second, he relies on figures of speech "we need to rethink," which is pap and takes refuge in mindlessly repeating Wall St. words like "hedged equity strategies," 4:46 Then he weasels with words like "perhaps." He's a noisy jargon machine; whereas, if he really knew what he was talking about, he could calmly describe the FACTS and dynamics and make it plain. He would not need to refuge in such vagueness, as he does.