The current bull market, which has been underway since the spring of 2009, is one of the longest on record: Only two of the 25 bull markets since 1929 have lasted longer.1
As history shows, however, eventually the bull run ends and the bears take over.
For pension fund managers, plan sponsors, and other fiduciaries concerned about whether their portfolios are protected against the inevitable downturn, it may be time to start thinking about what asset allocation strategies are appropriate to achieve that protection.
At the current stage of the market cycle, fiduciaries should be seeking managers who will enable them to participate in any remaining upside to the bull market, while protecting them during the inevitable bear market and producing superior risk-adjusted returns over a full market cycle.
Research shows that portfolios with bias toward quality may provide the solution and the protections fiduciaries are seeking. Quality-tilted portfolios historically:
- Outperform during bear markets, i.e., they decline less than others during market downturns; and
- Deliver higher risk-adjusted returns, as measured by Sharpe Ratios and Sortino Ratios, over full market cycles.
See the full research report and learn more in our paper, “A Clarion Call for Quality.”
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1 Sources: Bank of America, Merrill Lynch.↩
Sharpe Ratio: A risk-adjusted measure that measures reward per unit of risk. The higher the Sharpe Ratio, the better. The numerator is the difference between the portfolio’s annualized return and the annualized return of a risk-free instrument. The denominator is the portfolio’s annualized standard deviation (population).
Sortino Ratio: Subtracts the risk-free rate of return from the portfolio’s return, and then divides that by the downside deviation. A larger Sortino ratio indicates there is a low probability of a large loss.
These views represent the opinions of OppenheimerFunds and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.
Investments in mutual funds are subject to market risk and volatility. Shares may gain or lose value. Diversification does not guarantee profit or protect against loss.