Odd Lots
Meb Faber on the Big Bear Market in Diversification and Tactical Allocation
Oct 18, 2024
Meb Faber, CIO of Cambria Investment Management and a renowned figure in tactical asset allocation, shares insights on the recent disillusionment with diversification. He argues that traditional diversified strategies have underperformed compared to large-cap US stocks. The conversation explores the evolving landscape of ETF management, the growth of low-fee investment options, and the nuances of tax efficiency in portfolio strategies. Faber also highlights untapped opportunities in international markets, particularly in Latin America.
50:44
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Quick takeaways
- Diversification strategies have underperformed recently, with large-cap U.S. stocks significantly outperforming more varied investment portfolios over the last 15 years.
- While U.S. stocks have excelled, global diversification is essential for accessing potential returns from international markets in different economic climates.
Deep dives
The Risks of Diversification
Diversification, often seen as a prudent investment strategy, has faced criticism for underperforming in recent years. Investors who diversified across various asset classes have felt punished, as returns have favored concentrated investments in major U.S. tech stocks. As discussed, simply opting for an index like the S&P 500 would have resulted in significantly higher returns than a diversified portfolio. Analysts suggest this trend highlights the challenges of a diversified strategy in a market that has favored big caps, making diversification feel like a mistake.
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