A Place to Hide in a Market Regime

Modern portfolio theory states that implementing a diversified portfolio leads to significantly higher returns while minimizing risk. To put theory into practice, the negative relationship between asset classes is often a fundamental building block of a “so-called” diversified portfolio. The problem is that this assumption is based on market regimes with declining interest rates. In market regimes with rising interest rates:

  1. The diversification benefit of bonds is literally collapsing.
  2. Asset class correlations are constantly on the rise (especially in times of stress) due to globalization.
  3. Market cap-weighted indices are heavily concentrated on a relatively small scale of stocks, reducing the diversification benefits.

That raises the question of whether traditional portfolios are still sufficiently diversified to act as core investment in fast changing market regimes. If not answered today, it will get answered by the market tomorrow.

For those investors who are proactively re-thinking ways to adjust their asset allocation in consideration of the “ending era of negative correlations”, we offer a highly diversified ETF model portfolio (WSC Model Portfolio Composite) designed to achieve maximum diversification across all market regimes beyond traditional approaches.

Focused on Maximizing Diversification Across All Market Regimes

Receive precise percentage allocation recommendations plus a weekly-updated performance factsheet in our members area.

The chart above shows you the growth of $10,000 invested in the WSC ETF Model Portfolio Composite (red line) and in a comparable traditionally balanced portfolio (blue line) with the same volatility since 1999. As the chart is updated on a weekly basis, you can see the performance until the most recent date.
Given its high degree of diversification, the WSC ETF Model Portfolio Composite provides significantly higher downside protection compared to a traditionally balanced portfolio. As a result, its performance is remarkably stable and robust, enabling the power of compound interest to grow your wealth over time.  Not surprisingly, our WSC Model Portfolio Composite has demonstrated outstanding risk-adjusted returns across all market regimes and has, therefore, strongly outperformed its benchmark.

The Strategies Behind the WSC ETF Model Portfolio Composite

The Philosophy: Diversification Based on Non-Correlated Investment Strategies

The performance of the WSC Model Portfolio Composite is the aggregated result of investing 25% (on a yearly basis) in each of the four ETF Model Portfolios offered by WallStreetCourier. Although each of the four model portfolios can be effectively used on a stand-alone basis, the aim is to incorporate them all on an equal-weighted basis with a yearly rebalancing mode. Since each model portfolio has its own investment objective (ranging from achieving superior stable returns to exceptionally high absolute and relative returns, or is simply designed as a hedge for a certain market environment), the correlation to one another is extremely low.

As a result, following all of the model portfolios ensures maximum diversification based on well selected investment strategies rather than using increasingly correlated asset classes.

Strategy 1: Stable Returns Over a Three-Year Time Horizon

The WSC All Weather Model Portfolio (AWP) is designed to achieve absolute positive and stable returns over a three-year investment horizon (by exploiting the diversification premia in a very systematic way).

WSC All Weather Model Portfolio

The portfolio allocation is updated on the last Friday of every month. Subscribers will additionally receive a factsheet with detailed risk and performance figures updated on a weekly basis.

Strategy 2: High Annualized Returns Over a Full Market Cycle

The WSC Dynamic Variance ETF Model Portfolio (DVP) is designed to achieve high positive returns in strong up-trending global markets and to cap losses during volatile market regimes (by exploiting the time-series momentum in a very systematic way).

WSC Dynamic Variance ETF Model Portfolio

The portfolio allocation is updated on the last Friday of every month. Subscribers will additionally receive a factsheet with detailed risk and performance figures updated on a weekly basis.

Strategy 3: Equity-Like Returns With Lower Volatility

The WSC Sector Rotation Investment Strategy (SERO) is designed to limit the downside potential during bear markets and to perform at least as good as the S&P 500 during bull markets. The model portfolio is exploiting time-series- and cross-sectional momentum by selecting the strongest trending sectors in the S&P 500 in a very systematic way. The aim is to achieve equity-like returns with lower volatility, leading to higher risk-adjusted returns over a full market cycle.

WSC Sector Rotation Investment Strategy

The portfolio allocation changes every two months on average. Apart from precise allocation recommendations, subscribers will receive a weekly updated factsheet with detailed risk and performance figures.

Strategy 4: Enhanced and Stable Returns Above the Average Inflation Rate

The WSC Inflation Proof Retirement Portfolio (IPRP) is designed to perform reasonably well during a high inflationary market environment (by exploiting the diversification premia in a very systematic way). The aim is to generate enhanced and stable returns above the average inflation rate and to minimize potential losses in times when the overall inflation expectations remain quite low.

WSC Inflation Proof Retirement Portfolio

The portfolio allocation is updated on the last Friday of every month. Subscribers will additionally receive a factsheet with detailed risk and performance figures updated on a weekly basis.

All Strategies: Maximum Diversification Across All Market Regimes

The WSC Model Portfolio Composite is designed to achieve outstanding risk-adjusted returns across all market regimes with little correlation to common asset classes by exploiting the diversification premium in a very systematic way. The performance of the WSC Model Portfolio Composite is the aggregated result of investing 25% (on a yearly basis) in each of the four ETF Model Portfolio offered by WallStreetCourier.com.

WSC Model Portfolio Composite

The portfolio allocation is updated on the last Friday of every month. Subscribers will additionally receive a factsheet with detailed risk and performance figures updated on a weekly basis.

Escaping the Correlation Dilemma

Diversification gets increasingly difficult in the “ending market regime of negative correlations”. In particular, traditionally balanced portfolios are currently affected the most and, therefore, might not be sufficiently diversified to act as core investment anymore. We believe that an efficient way to tackle the correlation dilemma is to diversify risk amongst well-selected investment strategies. That ensures maximum diversification and, therefore, stable returns across all market regimes.

Relevant Research Papers Published by WallStreetCourier

Our practical approach is underpinned by deep theoretical as well as empirical research. Please visit our Seeking Alpha blog or read our award-winning research papers here:

Market Regime Based Investing for the Lazy Investor