Portfolio Manager Alpha versus Market Beta

The period 2009 to 2021 produced the strongest bull market in history. During this period, easy money, historically low real short and long term rates, and exploding central bank balance sheets drove market beta across fixed income and equity markets. Spreads continually tightened across all fixed income segments, corporate profits multiplied, and generally accepted P/E's got ratcheted higher by un-phased investors. But things have changed.

Investment Portfolio Design

Traditional portfolio design since 2009 relied upon several givens: Predictable asset class diversification, globalisation driven cost reductions, and benign real credit risk premiums. All of which have now changed. Perhaps permanently, or at least for the foreseeable cycle.

A reliance on beta and unlimited liquidity may not work for much longer. Inflation has taken hold, rates are rising, and Capital Market Assumptions are changing.

Professional investors are being forced to reconsider their investment portfolio design. The efficacy of passive investing going forward is being questioned. And active asset managers are raising their voices, pointing to the abundant supply of alpha across asset classes where region, country, sector and company return dispersion has widened. Curiously, the professional investor community is listening.