ReSolve and S&P Dow Jones Debut Industry-Leading Risk Parity Index
As happens near the end of every market cycle, investors are abandoning diversification at exactly the wrong time.
We wrote about this at length in our recent report “Cyclical Measures May Signal Swan Song for US Equities.” But while we noted that this is the maximum moment of pain for diversified investors, what we left out was just how strong the siren’s call to US stocks is.
The numbers are quite alarming. According to Morningstar (emphasis ours):
“While much of the attention has been on the active/passive divide in flows, the final months of 2016 saw a sharp shift in investor preference to US stocks and against bonds. Thanks to record flows into passive US equity funds, the overall inflows tally for US stock funds hit its highest monthly total since April 2000, at $27.8 billion.”
Investors are incredibly bad (or good, depending on how you use the information?) market-timers: literally one month after the top of the Tech Bubble in March 2000, investors abandoned diversification at a historic rate to pile into a crowded, extremely overvalued, and exhausted investment theme.
History may not repeat itself in 2017, but it certainly will rhyme.
The thing is, diversification is so painful for investors because they judge their success and failure based on undiversified benchmarks. That’s one of the biggest reasons money is chasing last year’s winner: US stocks. That’s also the main reason we partnered with S&P Dow Jones Indices to launch the ReSolve Global Risk Parity Index.
ReSolve’s primary mission has always been to educate investors on the importance of thoughtful diversification. And judging by the fund flows report, there’s no more pressing time to do so than right now. We hope this new index is a useful tool in keeping your clients from heeding the siren’s song of US equities.