All New Frontier strategies closed the month at all-time highs. Optimized diversification worked well in a volatile month with wide dispersion among asset classes. Small-cap U.S. stocks, particularly small-cap growth, performed exceptionally well, while international assets suffered from the rising dollar, which was up another 3% this month. Aggregate bonds were down for the month, but thanks to an optimized total portfolio, even the bond-heavy conservative portfolios performed well.

Takeaway:

• New Frontier’s multi-asset portfolios performed well even when many individual asset classes do not.

New Frontier Global Multi-Asset ETF Indices

Source: S&P Dow Jones Indices, November 27, 2024

Bitcoin is up, but its value remains uncertain. Bitcoin can be considered a speculative asset, or an alternative currency. Bitcoin’s main investment thesis as a speculative asset is that it might appreciate even more. From that perspective, it potentially contributes to an aggressive portfolio as an asset with seemingly unlimited upside potential, and a downside limited at zero. While it’s difficult to assign a precise value to the upper element, there are some upper limits on the value of bitcoin. Cryptocurrencies that are backed by nothing, must eventually be exchanged for something in order to have value. Therefore, the sum total of what they can be exchanged for must have a limit. All other global assets have a combined value in the order of a few hundred trillion dollars. Currently, there is $2.3 trillion of US currency in circulation, while bitcoin alone is currently valued at $1.9 trillion (source: ycharts.com). It’s difficult to justify a need for substantially more cryptocurrency than hard currency.

For Bitcoin to become a decentralized currency that people use as a store of value for everyday transactions, it needs to become stable – which is the opposite of what makes it attractive to investors. This paradox provides another obstacle for bitcoin in the long term: if governments regulate cryptocurrencies and they become more mainstream, their reduced potential for appreciation will make them less attractive to speculators.

Takeaway:

• Bitcoin represents a speculative opportunity that requires measured caution in the portfolio context.
• There may be an upper limit to the price of bitcoin.

Asset managers publish Capital Market Expectations, but don’t all follow their own forecasts. JP Morgan, Vanguard, BlackRock and other asset management firms have released their annual CMEs for 2025. Some common themes include higher expected returns for international stocks, and relatively low future expectations for hot performers such as large U.S. technology companies. Given that many popular model portfolios seem to hold different allocations than is implied by the CMEs, this begs the question of whether asset managers optimize their portfolios according to their own CMEs.

Takeaway:

• New Frontier optimizes portfolios according to our best expectations of forward risk and return estimates.
• Investors should demand fully optimal strategies.