Main asset classes September 2021 Risk profile

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Risk-adjusted performance continued to increase in September for the Global Market Index (GMI), an unmanaged market-weighted portfolio that holds all major asset classes (except cash). But the widespread losses in the markets last month suggest that GMI’s 10-year Sharpe ratio may have peaked for this cycle.

GMI’s 0.97 Sharpe Ratio is near the highest levels achieved in recent history. In early 2019, GMI’s Sharpe ratio briefly rose (slightly) above 1.0. But this is wasteland for a multi-asset class portfolio and maintaining that level – or even approaching it – is rare. As a result, a level close to 1.0 is likely a sign that GMI’s risk-adjusted performance is likely to peak for the foreseeable future.

10-year GMI annualized Sharpe ratio

Another reason to expect GMI’s Sharpe ratio to peak: The index’s risk-adjusted performance exceeds most of the equivalent for major asset classes. Only US stocks and US real estate investment trusts show higher Sharpe ratios for the last 10-year period (see table below).

Profiling the GMI through a folding lens shows that the recent peak performance series has cracked. After seven consecutive months of hitting new highs, the GMI fell sharply in September, ending the month with a decline of 3.4%.

History of GMI withdrawals

History of GMI withdrawals

The GMI represents a theoretical benchmark for the “optimal” portfolio. Using standard financial theory as a guide, this portfolio is considered a preferred strategy for the average investor with an infinite time horizon.

These assumptions are, of course, unrealistic in the real world. Nonetheless, the GMI is useful as a benchmark for starting research on asset allocation and portfolio design. GMI’s history suggests that the performance of this benchmark is competitive with active asset allocation strategies on the whole, particularly after adjusting for risk, trading costs and taxes.

For more context, readers can use this Core Risk Profile for GMI with current monthly updates on and for the benchmark and its constituents.

The table below presents additional risk measures for GMI and its underlying asset classes, based on a 10-year window to last month.

Summary table of performance and risks
Summary table of performance and risks

Here are brief definitions of each risk measure:

  • Volatility: annualized standard deviation of monthly return
  • Sharpness ratio: monthly returns / monthly volatility ratio (the risk-free rate is assumed to be zero)
  • Output report: Downside excess performance of the semi-variance (assuming a target threshold of 0%)
  • Ulcer index: duration of drawdowns by selecting a negative return for each period below the previous peak or high water mark
  • Maximum draft: deepest decline from peak to trough
  • Beta: measure of volatility against a benchmark (in this case GMI)


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