Odd Lots Meb Faber on the Big Bear Market in Diversification and Tactical Allocation
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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.
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Global Portfolio Starting Point
- Start with a global market portfolio (half stocks, half bonds, half US, half foreign).
- Consider that US stocks have outperformed recently, but this trend might not continue.
US Dominance Not Guaranteed
- US stock market dominance isn't guaranteed, as seen with Japan's stagnation after its peak in the 1980s.
- Currently, US stocks are not in a bubble but are pricey, while international markets offer value.
Indexing's Value Blindness
- Market-cap indexing's weakness is its lack of value connection, leading to over-weighting expensive stocks.
- Flows heavily influence performance, especially in concentrated strategies.
