The Alternative Callan Periodic Table of Investment Returns

There’s no argument from the financial community that diversification isn’t needed in your long term investment strategy. The degree of diversification and how much diversification, however, is very much up for debate. We don’t think there will ever be a general consensus on this, and for good reason. Alternative Investment managers can’t even agree on how much investors should allocate to their slice of the pie, partially because you have to first determine what you want out of your diversification. Everyone wants something different out of their diversification and if someone tells you there’s a one size fits all approach, you can usually run the other way.

There’s no better evidence of the necessity of diversification than the Callan Periodic Table of Investment Returns that makes the rounds each year.

callin-periodic-table-2016

Or as Ben Carlson of “A Wealth of Common Sense Blog,” calls it, the asset class quilt.

ben-carlson-asset-class-quilt-2017

It shouldn’t be shocking to know that we’ve discussed this chart multiple times (here and here). Our main issues are:

1) it doesn’t include Managed Futures / Global Macro – or really any other alternative investment.  Here’s an ‘Alternative’ version that fixes that:

rcm-alternatives_asset_classes_blocks_2017
Large Cap = S&P 500
Small Cap = Russell 2000
Intl Stocks = MSCI EAFE
Emerging Markets = MSCI Emerging Markets
REIT = FTSE NAREIT All Equity Index
HG Bond = Barclay’s U.S. Aggregate Bond Index
HY Bond =BoAML US High Yield Master II
Cash= 3 Month T Bill Rate
Managed Futures = SG CTA Index
Hedge Funds = Hedge Fund Strategy QAI
Commodities =Bloomberg Commodity Index
AA = Asset Allocation Portfolio
(15% Large Cap, 15% Intl Stocks, 10% Small Cap, 10% Emerging Markets, 10%  REIT, 40% HG Bond)

2) The periodic table/quilt doesn’t show the magnitude of the moves all that well (which really is the most important part of the chart in our opinion). Coming in fourth place in a year while also being down -36.4% doesn’t truly explain how much you’re really losing from your portfolio. So, we did another chart adding in the magnitude of the moves to reflect just how large some of those asset classes move year to year.

AssetClasses_Timeline_2017_

P.S. – Beware thinking the assets listed herein are all that’s needed to provide diversification. See 2002 and 2008 as prime examples of when asset classes became way more correlated than you might think. Just one of the topics in our whitepaper titled, “Why Alternatives.”

P.P.S – When big names in the financial world (Reformed Broker) tweet about commodities being bad over the past ten years.

And tables like these have commodities as the sole “alternative” asset in the chart, that’s a disservice to investors and the great diversification benefit of other alternatives; implying that alternatives can only make money when commodity prices are moving up. To that we say, uggh. Long only commodities are a bad idea, especially if accessed via ETFs. The truth of the matter is that there are 1000’s of systematic Managed Futures and Global Macro programs (register for our database here) that look to find returns when the futures markets move up and down.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

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