ReSolve Adaptive Asset Allocation – 2016 Year End Review
00:00 – Introduction
02:25 – Putting Diversification in context
06:25 – Relative Global Market Performance
10:20 – Putting 2016 Winners into Context
15:23 – Adaptive Asset Allocation Recap
17:23 – 2016 AAA versus the Global Asset Classes
18:37 – Historical Parallels to 2016
22:17 – AAA Index Through A Full Cycle
24:01 – Summary
27:03 – Conclusion
Year End Commentary
2016 was a year that rewarded passive risk takers and not active risk managers.
In fact, the past two years have been characterized by a lack of direction and low returns for most asset classes. While the US and Canadian equity markets may seem like “winners” in calendar 2016, their success comes with some important caveats. And over a more appropriate observation horizon, we find they have been more challenging markets to participate in.
These periods of trendless market consolidation are relatively rare and usually coincide with major unexpected shifts in political or monetary climate. It is the unexpected nature of these shifts that causes markets to be caught wrong-footed time and again. We can only point to two periods in the past quarter century that look similar to this one (1994 and 2004).
Historically, once these consolidation periods ended, persistent upside and downside trends reemerged in abundance. Subsequently, ReSolve strategies have typically produced some of their best returns. For example, over the two years following the 1994 and 2004 consolidations, the Adaptive Asset Allocation Index (AAA) annualized at over 20%.
AAA’s historical performance after years like 2016 has been skewed to the upside, suggesting that now might represent a very good time to rebalance portfolios away from recent North American “winners” and toward globally diversified strategies with downside protection.