All Weather Portfolio Lab

Roger Nusbaum recently published an excellent piece. And, in the spirit of efficient markets, I’ve decided to steal his title as well.

While Roger focused on how to size alternative assets, I believe that’s a secondary concern. The data suggests that the most critical decision isn’t the weight: it’s the inclusion. Before you optimize the slice, you have to own the pie.

Sizing is often a function of constraints: fund count to achieve a real “beta” exposure, risk metrics, or “preferences.” Candidly, whenever I hear investors talk about “preferences” in a portfolio context, I’m baffled. You aren’t taking that ETF to dinner. What does “I don’t like gold” even mean? You aren’t marrying the asset; you’re hiring it to do a job. Either the math works or it doesn’t. If you think an asset has negative expected value, (kind of) fine. But “disliking” a return stream is a stupid emotional tax on your wealth.

Roger’s post reinforced my affinity for the All Weather philosophy. Forget the “leveraged bonds” caricature; the core insight is simpler: accumulate as many uncorrelated return streams as possible. If you find enough reliable, independent drivers of return, the exact weighting matters far less than the collective diversification. You’ll end up just fine.

Even for my Europoor friends, the toolkit is finally robust enough to execute this. Using Testfol.io for a US-proxy backtest, here is what a modern, diversified portfolio can look like today:

• Global Stocks (VT): The foundational engine of capitalism. No explanation needed.
• Long-Term Bonds (TLT): Specifically “long-term” to capture the necessary duration profile.
• Gold (GLD): The data doesn’t care if you “like” it or not; it provides a unique risk profile.
• Trend Following (DBMF): If you follow my work, you know Trend provides a nice “crisis alpha.” DBMF is a solid proxy, though diversifying across multiple managers better.
• Equity Long/Short (QMINX): Retail investors in Europe can access AQR strategies. I’ve done it myself. It’s active management, yes, but it provides a factor exposure that is hard to get elsewhere.
• NatCat Bonds (SHRIX): As of 2025, we have the first European NatCat ETF (ticker: CATB). Insurance-linked securities are the epitome of an uncorrelated asset.
• Commodity Carry (UEQC/CRRY): I’ve excluded these from the backtest due to a lack of US-equivalent proxies, but in a real-world portfolio, they are a phenomenal inclusion.

One final note: While UCITS-compliant versions of these strategies exist, your broker might be the bottleneck. If they are too unsophisticated to offer these tools, that’s an operational failure on your part, not the market’s. We live in a world of choice, if your broker is holding your strategy back, find a new one.

This is the portfolio Roger inspired:

My approach here is both simpler and more pragmatic than Roger’s. It’s simpler because the alternatives are equal-weighted, and it’s more realistic, perhaps even more “stay-invested-able”, because it maintains a higher core of traditional stocks and bonds.

If you aren’t familiar with Roger’s current stance, he is staunchly “anti-duration.” He sees no point in holding long-term bonds in the current environment. While I can appreciate his tactical outlook, even if a ten-year horizon cannot even be called “tactical”, my goal is to build an evergreen portfolio.

I have no interest in a strategy that shifts based on the prevailing macro narrative. That is why TLT remains. The data suggests it might be a drag on performance in the near to mid-term, but in an evergreen model, you don’t fire an asset just because the current forecast looks gloomy.

Despite the simplicity, the naive equal-weighting, the math holds up. The result is a portfolio with a Sharpe Ratio of 1.0.

In the world of investing, a Sharpe of 1.0 is the “Holy Grail” of risk-adjusted returns. However, for most investors, this portfolio might actually be too conservative. The volatility is so well-contained that the absolute returns might not meet your long-term goals.

So, let’s see what happens when we apply a little leverage to turn up the volume:

8 years is a short period for a backtest. If I ditch NatCat bonds, I can get to…10 years 🙁

and with leverage:

I could remove QMINX to extend the backtest further into the past, but this blog is already full of the “New Permanent Portfolio” (stocks/bonds/gold/trend) analysis. We already know that works. The takeaway remains the same: the All Weather premise is structurally sound, even for investors in Europe.

What I am reading now:

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