2025Progress Report: My Asset Allocation and Performance - Q2 2025 Review
Hey there! Let's dive into my investing journey that kicked off in early 2025. I've been openly sharing my portfolio moves, buckin' against the market's volatility, and still beating both the MSCI World and the S&P 500. But yeah, my alpha took a bit of a hit compared to ... c'mon, we all knew that wasn't going to last forever, right?
So, what's the deal behind this alpha drop? Well, it's all about market dynamics and the challenges of portfolio management. Let me break it down for ya:
- Market rotations: We saw a shift away from high-growth sectors like AI and tech, and more towards equity income and value stocks. This change of heart by the market can challenges a portfolio that's been riding high on those sectors.
- Equity Risk Premium (ERP): In an environment where ERP is low or close to zero, the dominance of alpha as a return source becomes harder to sustain. Particularly when there's increased market volatility or rotation.
- Increased volatility and defensive stocks: Defensive equities, like low-volatility stocks, often shine in downturns or volatile markets. If my portfolio wasn't defensively positioned or didn't adapt to this shift, it's likely my alpha took a hit.
Now, let's talk shop about portfolio management:
- Risk management signals: Disciplined stop loss signals can impact alpha by helping protect it from prolonged exposure to losing positions. If my risk management wasn't responsive or properly calibrated, alpha could suffer.
- Strategic allocation and diversification: A well-balanced portfolio between equities, fixed income, and alternative assets can maintain stable alpha across market cycles. Failing to adjust allocations in a timely manner can lead to underperformance.
So, there ya have it, folks! Blame it on the market rotations, ERP, increased volatility, and maybe a bit of sloppy portfolio management. But don't worry, I'm learning from my mistakes and ready to take on whatever comes next!
My personal-finance strategy took a hit due to market rotations that favored equity income and value stocks over high-growth sectors like AI and tech. Moreover, the low or zero Equity Risk Premium (ERP) in the current market environment makes it harder to sustain alpha, especially in environments of increased volatility or rotation.
