During the last quarter, there has been a significant increase in writings about the position of the world economy in relation to the massive global indebtedness that we are facing at the moment. The situation is tricky in that still very few steps have been taken for protection against such risks based on this market analysis (read more about the historic market conditions here: http://hcpbkp.wpengine.com/en/how-much-is-a-lot-of-debt/).
In concrete terms, I have dropped the proportion of stocks in the HCP Black fund from 54% to 12% and, similarly, the proportion of bond investments from 23% to 2%. Bonds are also vulnerable to the risks of the situation because debt cancellation is one of the remedies used for over-indebtedness. For bonds as an investment, this means cutting the nominal value of bonds which causes the fall in their value. Compared to a traditional portfolio in the financial sector with 50% invested in stocks and 50% in bonds, the corresponding numbers in the HCP Black fund are now 12% and 2%, respectively.
From ideas to action
There are certainly many reasons why the analyzed high level of risk in the market doesn’t trigger asset allocation changes throughout the financial sector, but I would say that one reason is more significant than the others. The fact is that the traditional asset classes, stocks and bonds, are what brokerages, banks and asset managers have traditionally had to offer. This norm is already shown by the fact that there are over 300,000 funds in the world, less than 10,000 of those allow for investing with a much wider diversification than the traditional 50/50 stocks and bonds allocation. Among these 10,000 funds, HCP Black is one of the 669 funds that belong to the category multi-strategy. This strategy allows for significant changes in asset allocation according to the prevailing economic situation. Now, 77% of the HCP Black fund is invested in asset classes that protect from difficult economic conditions.