Strategic investors looking for explicit opportunities for rebalancing portfolios among the major asset classes are still faced with modest opportunities, at best, so far in 2007. As our table below documents, bull markets continue to prevail across the spectrum. That’s good news for tabulating past performance. It also gives diversification a good name. But the trend doesn’t necessarily impress when it comes to formulating a guess about expected returns.
Asset allocation is nothing if not a strategy for deploying capital that assumes humility about forecasting the future. Indeed, if investors knew what was coming, asset allocation would be about as relevant as carrying back-up ice cubes in Antarctica. But the future is, in fact, unknown, contrary to what you may have heard elsewhere. As such, owning a variety of assets, preferably those that move with a degree of independence from the others, is the only game in town for investors intent on the twin goals of growing capital while minimizing the associated risks.
That brings us to the current dilemma of finding alluring asset classes for fresh injections of capital, or redeploying money from assets that have run up to those that have fallen. On the one hand, there are obvious areas to pare, particularly for investors that long ago made commitments to some or all of the markets noted above. The problem comes in deciding how to redeploy. Alas, there are no asset classes that have fallen recently, at least not among the publicly traded ones with related index funds and ETFs.