Barron's Roundtable vs. Mr. Market's Asset Allocation
James Picerno | Dec 18, 2012 07:07AM ET
Mebane Faber has some fun thinking about an idea for an ETF that tracks the investment results published by the Barron's Roundtable, an annual feature dispenses an array of portfolio recommendations. As Pundit Tracker notes, following the investment picks of the annual Barron’s Roundtable has been a lucrative approach over the years. Since 2002, the average Roundtable return has been 11.5% versus -0.2% for S&P 500, with all but one of the members outperforming the index.
A Passive And Investable Benchmark
Of course, much depends on one's definition of "index." The standard answer is the S&P 500, but that's really just one piece of the world's capital and commodity markets. In any case, the roundtable numbers republished by Pundit Tracker inspired some thinking of my own. How, for example, did the Barron's Roundtable data compare with my proprietary Global Market Index, a passive and investable benchmark of all the major asset classes? And what does the comparison tell us about asset allocation vs. favoring star investment managers?
Pundit Tracker (PT) has the numbers on the roundtable and I have GMI data, so it's easy to compare the results. The S&P 500 is also included, via PT, although it's a bit hard to see in the lower right-hand corner in the chart below because this index's results for the 10-year span under scrutiny (2002-2011) is nearly flat at -0.2%. (pointed out a number of years ago, the winning portfolios are financed by the losers. It's a zero sum game when it comes to investment returns. That's not the last word on designing investment strategies, but it's an empirical fact that should inspire some humility about what's probable, what's not, and what it suggests for designing and managing portfolios.
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