Today we will look at a portfolio published by Meb Faber in his book Global Asset Allocation. The Global Market Portfolio is a passive investment strategy that aims to capture the returns of the global financial markets by investing in a diversified mix of asset classes.
Before 2000, the portfolio did a good job matching the returns of stocks but with less drawdown. However, after the turn of the century, the portfolio has lost some of its velocity.
Meb Faber’s Global Market Portfolio – Does it Work?
Meb Faber is a well-known author, podcaster, and co-founder of Cambria Investment Management, who has created an investment strategy that he calls the “Global Market Portfolio.”
This portfolio is designed to be a simple, low-cost, and globally diversified investment solution for individual investors. In this article, we will explore what Meb Faber’s Global Market Portfolio is, how it works, and whether it actually works.
What is Meb Faber’s Global Market Portfolio?
The Global Market Portfolio is a passive investment strategy that aims to capture the returns of the global financial markets by investing in a diversified mix of asset classes.
The idea behind this approach is that by investing in a broad range of assets, investors can reduce their exposure to an individual company and country risks and capture the returns of the global markets as a whole.
What types of investments are in Meb Faber’s Global Market Portfolio?
The Global Market Portfolio comprises a mix of asset classes, including stocks, government bonds, corporate bonds, and real estate.
The specific allocation of these asset classes is based on the global market capitalization of each asset class. In other words, the portfolio invests more heavily in asset classes that have a larger market capitalization.
What funds are included in Meb Faber’s Global Market Portfolio?
To implement this strategy, Faber recommends using a combination of low-cost index funds that provide exposure to the various asset classes.
Specifically, he recommends investing in the following funds and allocations (with examples of relevant/potential ETFs):
|Asset class||Fund name||Symbol||Allocation|
|US large-cap stocks||Vanguard Large-Cap||VV||20%|
|Foreign developed stocks||Vanguard FTSE Developed Markets||VEA||15%|
|Foreign emerging market stocks||iShares MSCI Emerging Markets||EEM||5%|
|US corporate bonds||iShares Investment Grade Corporate Bond||LQD||22%|
|US long-term bonds||iShares 20+ Year Treasury Bond||TLT||15%|
|Foreign bonds||Vanguard Total International Bond||BNDX||16%|
|TIPS||iShares TIPS Bond||TIP||2%|
|REITs||Vanguard Real Estate||VNQ||5%|
How does Meb Faber’s Global Market Portfolio work?
The Global Market Portfolio is a passive investment strategy that is designed to be low-cost and easy to implement.
The basic idea behind the strategy is to invest in a globally diversified mix of asset classes and to rebalance the portfolio periodically to maintain the desired asset allocation.
By doing so, investors can capture the returns of the global financial markets without making individual security or market timing decisions.
Performance of Meb Faber’s Global Market Portfolio
According to Faber’s research in his book Global Asset Allocation, the Global Market Portfolio has generated an average annual return of 9.90% from 1973 to 2013 with a max drawdown of -26.87%.
The returns are comparable to the stock index returns but with half the drawdown. (Stock indexes had an average annual return of 10.21% with a max drawdown of -50.95% from 1973 to 2013).
We backtested this portfolio from 2000 to 2023 and observed somewhat different results:
The annual returns were 5.86%, and the max drawdown was -30.70%. We believe the difference is attributable to the huge bull run in bonds in the 80s and 90s, which are periods not covered by this backtest.
Meb Faber’s Global Market Portfolio – Does it work?
The Global Market Portfolio is a simple, low-cost, and globally diversified investment strategy that has the potential to deliver strong long-term returns.
However, like any investment strategy, it is not without its risks. For example, investing in emerging market stocks and bonds can be more volatile than investing in US stocks and bonds. Additionally, the portfolio’s heavy reliance on US stocks and bonds may not be appropriate for investors seeking more diversification.
Overall, investors looking for a low-cost, globally diversified, and “easy” investment approach may find success with the Global Market Portfolio. But, before investing in this, it is crucial to carefully analyze your investment goals and time horizon – not to mention your risk tolerance to avoid knee-jerk decisions like selling into a panic.
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