Here is one of the best ways to diversify your portfolio

Systematic hedge funds seek to create returns by going long certain securities and short others.

By doing this, managers create a completely new return stream that isn’t dependent on the stock market.

These strategies are typically built around what are called “factors” or “signals”, which are persistent patterns that may realize excess returns over time.

A good manager is constantly researching new signals and refining the alpha model.

One of the better-known factors is low volatility / low beta.

Historically, lower volatility stocks have tended to outperform higher volatility stocks on a risk-adjusted basis over long periods of time.

Right now, the attractiveness of that spread is near multi-decade highs.

That’s exactly why it’s valuable to have differentiated return streams in a portfolio.

If public equity valuations are rich, you don’t have to force every marginal dollar of your portfolio into that asset class.

You can allocate toward opportunities that may offer:

• better relative value
• diversification benefits
• and in some cases meaningful tax advantages as well

Some tax-aware hedge fund structures can even realize ordinary deductions that help reduce current income taxes while pursuing those return streams.


The tweet below + chart above was shared by Tobias Carlisle

High Beta versus Low Volatility screams to a new all-time high.

The ratio measures risk appetite:

• Rising ratio → High Beta outperforming Low Vol, i.e., a “risk-on” regime.
• Falling ratio → Low Vol outperforming, i.e., “risk-off” or defensive positioning.

In the long-run, Low Volatility > High Beta.

The ratio Is at a multi-decade high.
The current reading exceeds prior peaks:

• 2007 peak (right before the GFC)
• 2018–2021 meme-stock peak
• 2023–2024 AI boom

Today's level is the highest since at least 2006.