For years, one way to get market-beating returns was to run towards assets with the highest prices. Now, that’s changing fast and the hypothetical bubble portfolio shows just how much.
This bubblelicious basket is stuffed with securities that have long been accused of being over-inflated — with equal weightings given to everything from Chinese internet and real estate names to U.S. tech stocks like Netflix and Tesla, as well as cryptocurrencies and bonds with ultra-long maturities.
Created in 2017 by GAM UK fund manager Paul McNamara, the bubble portfolio made a simple point: Running with the crowd can be immensely profitable.
That’s changed this year, however, as the prospect of higher interest rates and concerns over an economic slowdown have taken their toll on the frothiest of assets. The bubble portfolio has delivered total returns of -30.93% so far this year, while total returns for the S&P 500 are around minus 16% in the same period.
Looking at some of the bubble portfolio’s underlying holdings, it’s not hard to see what’s behind the underperformance.
