Our Investment “Quilt” For 2020 is Sewn with Diversification

January 29, 2020

by Neil Azous, Chief Investment Officer


The Callan Periodic Table of Investment Returns depicts annual returns for 10 asset classes, ranked from best to worst performance for each calendar year. Each color represents an asset. The randomness of the year-on-year returns is known as the “quilt” effect.

At Rareview Capital, we take it one step further and sew our own blanket. Specifically, we like to visually represent the performance of the major asset classes on a risk-adjusted return basis. Why? To see if there is extra insight to gain from each individual asset class. For example, our blanket shows which asset provided investors with more return per unit of risk.

As you can see, 2019 was the only year in modern history that saw every major asset class have a Sharpe ratio of over 1.00.

The key observation from looking at performance, either on an absolute or risk-adjusted basis, is that the contrast between the investing environments in 2018 and 2019 could hardly have been starker. They were, for all intents, opposites. Also, we are reminded that each year, there is a new combination of top-quartile performers, with no asset making the cut more than two years in a row.

Looking forward, a repeat of 2018 or 2019’s aggregate performance, either on an absolute or risk-adjusted return basis, is unlikely – the truth potentially lies somewhere in the middle this year. Therefore, portfolio diversification remains paramount.

The observations above strongly dovetail with the current fundamental backdrop in the market.

▪ Real return forecasts are historically low or negative across asset classes, making it currently difficult to favor one asset class over another.

▪ The Federal Reserve is currently on hold. In the intermediate-term, the US Treasury market is priced with a bias to cut interest rates further.

▪ The cost of capital is low, liquidity dynamics are positive, and volatility across asset classes is at-or-below normal levels.

Collectively, these conditions favor income strategies and active bond managers, which, unlike equities, have historically outperformed their passive counterparts. Having an active multi-asset manager that seeks to allocate dynamically amongst uncorrelated asset classes has the potential to enhance the overall returns per unit of risk. As a result, we believe that multi-asset strategies will see above-average inflows, especially ones that have distributed high income and can demonstrate alpha generation.

With the view that the “quilt” will look different this year, here is a checklist to consider when selecting a diversified strategy:


Active Manager

 High Income

 High Sharpe Ratio

 History of Generating Alpha

If you are interested in learning about how our income solutions check these boxes, please call us at 203-539-6067 or email us at info@rareviewcapital.com.


This material is for informational purposes only and does not constitute an offer or a solicitation to buy, hold, or sell an interest in any investment or any other security, including any investment with Rareview Capital LLC (“RVC”) or any of its affiliates or any other related investment advisory services. This material is not designed to cover every aspect of the relevant markets and is not intended to be used as a general guide to investing or as a source of any specific investment recommendation. This material does not constitute legal, tax, or investment advice, nor is it a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional adviser. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. In preparing this material, RVC has relied upon data supplied by third parties. RVC does not undertake any obligation to update the information contained herein in light of later circumstances or events. RVC does not represent the information herein is accurate, true or complete, makes no warranty, express or implied, regarding the information herein, and shall not be liable for any losses, damages, costs or expenses relating to its adequacy, accuracy, truth, completeness or use. This material is subject to a more complete description and does not contain all of the information necessary to make any investment decision, including, but not limited to, the risks, fees and investment strategies of an investment. All investments carry a certain degree of risk, including the possible loss of principal. There is no assurance that an investment will provide positive performance over any period of time. There are specific risks that apply to investment strategies. Securities highlighted or discussed in this communication are mentioned for illustrative purposes only and are not a recommendation for these securities. RVC actively manages client portfolios and securities discussed in this communication may or may not be held in such portfolios at any given time. Closed-end funds frequently trade at a discount to their net asset value. These risks should be reviewed carefully before taking any investment action. Since no one investment style or manager is suitable for all types of investors, this site is provided for informational purposes only. The statements contained herein are the opinions of RVC. This site contains no investment advice or recommendations. Individual investor results will vary. Rareview Capital LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. Past performance is no guarantee of future results.

Other important risk considerations, products or terminology:

  • Sharpe Ratio: A risk-adjusted measure calculated using standard deviation and excess return to determine reward per unit of risk.
  • Alpha: We determine Alpha as the relative return of a Closed-End Fund’s (CEF) share price to its Net Asset Value (NAV). Any return of the share price that is greater than the NAV is deemed to be positive alpha. Any return that is negative than the NAV is deemed to be negative alpha.
  • Net Asset Value (NAV): A mutual fund’s price per share or exchange-traded fund’s (ETF) per-share value. In both cases, the per-share dollar amount of the fund is calculated by dividing the total value of all securities in its portfolio, less any liabilities, by the number of fund shares outstanding.
  • Discount-to-NAV: A pricing situation that occurs with a closed-end fund when its market price is currently lower than the net asset value of its components.