Highlights:
- New Frontier portfolios are at or near all time highs.
- There is broad support with many asset classes also at all time highs.
- Gold in particular remains a useful part of a strategic portfolio, independent of its spectacular recent performance.
- The government shutdown is not unexpectedly affecting markets.
Markets have broadly reached new highs. Despite global uncertainty, all New Frontier strategies reaching new highs. This is a good time for broad diversification with gains across a wide range of asset classes. On a total return basis, U.S. large-cap, international, emerging and small-cap stocks, as well as aggregate bonds and gold are all at or near their historical peaks. This widespread appreciation indicates the current market is supported by broad economic drivers.
However, U.S. large-cap performance is concentrated. If the year-to-date contributions from just Nvidia and Meta were excluded, the S&P 500's return would trail that of the small-cap Russell 2000 index. This highlights the significant idiosyncratic risk present even within a broad, capitalization-weighted index and illustrates the dual objective of a diversified portfolio: to mitigate company-specific risks while efficiently capturing returns across the entire global investment opportunity set.
Takeaway:
- The strong performance of many asset classes highlights the benefit of a diversified portfolio less subject to the risk of concentrated equities.
Gold is a strategic risk diversifier, not a return maximizer. In a year where many asset classes have done well, gold has had a spectacular year, with a 48% YTD return. As a long-standing strategic holding, gold has greatly contributed to our Global Core portfolio performance.
Over the long term, however, gold has broadly kept pace with inflation as shown in the nominal vs real price chart. Its returns have varied across environments: strong in periods of high inflation and stress (1970s, 2000s, post-COVID) but flat to negative in more stable disinflationary periods (1980s–1990s, 2010s) as highlighted in the returns-by-period chart. Smoothing out the rapid rise after gold was unpegged in 1971 puts the long-term real return at about 2% per year, while starting from 1980 brings it closer to 0–1% per year.
Gold’s store of value, limited supply and inflation hedge characteristics remain central to its long-term value, though some have recently argued for a higher return thesis, citing potential tailwinds from further financialization (e.g., record gold ETF flows), concerns over currency debasement, and greater household diversification into gold. These factors could add incremental demand, but the case remains speculative. It is too early to conclude that a new era has begun in which gold consistently delivers high real returns.
For allocation purposes, it is important to align expectations with gold’s role. Gold should not be relied on as a long-term growth driver but rather as a strategic holding for diversification and risk management. It has historically helped protect portfolios when both stocks and bonds struggled, though tactical timing is difficult and unreliable. In our view, gold is best viewed as a store of value and portfolio risk hedge, not as a consistent high return engine.
Takeaways:
- Gold has reached record highs, supported by strong demand and its role as a store of value and hedge. Over the long run, it has broadly kept pace with inflation.
- Gold is best seen as a strategic holding for diversification and risk management, not a long-term growth driver.
Gold Nominal vs Real Price from 1970-2025
Source: Bloomberg, U.S. Bureau of Labor Statistics as of 09/30/2025
Gold Return by Period
Source: Bloomberg as of 09/30/2025. Long-term Real Return from 1980-2025
The government shutdown has not significantly altered markets. This is not a surprise since markets anticipated the shutdown. Furthermore, shutdowns have historically resolved with little lasting economic damage and been roughly neutral for broad equity returns (see below for both points). In the framework we’ve used in recent IC notes – markets interpret news as irrelevant, expected, or informative – shutdowns usually land in the first two buckets, so price moves tend to be modest and short-lived absent an economically significant surprise.
There can still be substantial market volatility even with small market moves, but shutdowns have historically also had little excess volatility. Comparing VIX levels immediately before and after prior shutdowns shows limited and transitory increases in implied equity volatility. The outlier was the 2018 shutdown, when the VIX rose sharply; however, it reverted toward normal as investors recognized the shutdown’s limited impact on the corporate economy and as broader economic drivers emerged.
Finally, the muted reaction is what you’d expect when an event is anticipated. Prediction markets had been assigning roughly a 40% probability of a shutdown since early July, allowing investors to incorporate the risk over months rather than in a single step. With the outcome largely discounted ahead of time, incremental price impact at the moment of funding lapse was small; markets continue to focus on more meaningful information such as earnings, inflation, and other economic drivers.
VIX Index Level Before and After U.S. Government Shutdowns
Source: CBOE Volatility Index (VIXCLS) retrieved from FRED
Prediction Market for the 2025 U.S. Government Shutdown
Source: Kalshi markets (KXSHUTDOWNBY-25)
Takeaway:
- Both return and even volatility of markets are more affected by the period’s macro backdrop than the shutdown itself.