The Sunday Ride #4 – Best half-year in four decades!


The Sunday Ride brings a collection of Investment Research and Financial Independence topics for Long Term Investors with the aim of providing you the very best reads.

To be enjoyed with your Sunday post-ride coffee.

While rebalancing your portfolio, learn how the markets work and get the highest quality insights from Wall Street and Main Street.

Unlike the rest of, this series is provided without much additional guidance. 

As usual, everything is to be used at your own risk. 

Market Dashboard


A quick glance at where we stand Year-to-Date when you rebalance. Compiled specifically taking a Long Term Investor view. Updated throughout the year. Long term historical risk and returns are here

Mid-Year Asset Class Performance

  • As it’s often the case, assets that underperformed in the prior period are outperforming in the next. One recent example is US REITs or Dividend Stocks in the first 6 months of 2021. 
  • Bonds underperformed in the first months, especially the longer dated TLT ETF but have recently stabilised.
  • Emerging Markets continue to underperform relative to developed markets, especially US (Developed ex-US 10.5% and including US – see tables below – 13.6%)

10-Year Performance - Average Annual Risk and Return

  • Returns are best to be compared alongside Risk, which shows relative asset class merits on a standalone basis.
  • Emerging Markets didn’t provide sufficient return to compensate for Risk over the past decade, but things look better if you look at a longer time horizon.
  • The above chart is particularly helpful for Equities which have high correlations, less so for Bonds or Gold which may provide additional diversification benefit. It’s not captured here but I have explained in detail in my previous post.

CURRENCY-ADJUSTED 2021 Performance

With Dollar getting stronger, relative returns for the first 6 months of 2021 in European currencies look higher, except for the British pound. 

Rates are currently not increasing any further and expected inflation has stabilised, despite fears it may rise over the medium term.  

That partly explains the June rally in Tech stocks.

Best first half in four decades

bankofamerica-h1 2021 record year-historical comparison chart
Source: Bank of America

After an exceptional rally in 2020, the first 6 months of 2021 are another historical outlier. Be mindful of that. 

As you can see on the above graph, it’s the best first half for global stock market in nearly four decades, and the seventh best of the past century. 

Note that this only shows half (the first one) of the years, but highlights how unusual today’s markets are.

What’s even more interesting though is that, acccording to Bank of America, if equity fund flow continue at the current pace, this year will see greater net Equity inflows than the preceding 20 years combined (!)


This section is dedicated to research on what really matters (aka the 90% of your Portfolio) – achieving Financial Independence, Asset Allocation and Long Term Investing Research.


Vanguard has released a framework for constructing globally diversified portfolios.

Nothing is particularly new in this paper but it’s a good reminder of principles to follow in investing including right mix of assets or rebalancing. 

Worth also looking at updated charts of size or style tilt. By choosing one country over the rest, e.g. through home bias you will indirectly tilt your portfolio.  


For the more quanty of my readers, Dimensional Fund Advisors released a paper on currency hedging. 


Alpha Investing


If you decide to sin, then sin only a little. Active investing should be, at best, a tiny fraction of your portfolio (I tend not to exceed 10% of my portfolio). This section is dedicated research related to improving your knowledge about capital markets. 

Probably the best Vanguard piece published over the past weeks is related to patience in active investing.

It’s piece that factor investors may find interesting.


Vanguard starts by showing Net excess returns of winning only funds tracking certain factors.

In theory, the choice is appealing…


Downside risk is looked at in detail. Based on data since 1995, the frequency of underperformance is lowest for momentum – a perhaps overhyped strategy at the moment given its difficulty in implemenation. 



Patience is needed in active investing. Underperformance compared to a passive investing strategy can last, even for the best funds.

Finally, Vangaurd looks at the funds compares to their benchmarks.

“We find that close to 100% of outperforming funds have experienced a drawdown relative to their style and median peer benchmarks over one-, three-, and five-year evaluation periods—and that that 80% of outperforming funds had at least one five-year period where they were in the bottom quartile. 

This is especially important to understand given the results of a fairly recent survey of senior executives with asset allocation responsibilities.

The survey found that 89% of these executives would not tolerate underperformance for more than two years before seeking a replacement”

And even if you do pick the winning manager, there will be periods where you may lose faith and want to sell (similar to single name stocks) – the below chart shows that most winners lag their benchmarks at some point, by over 20%.

What’s the likelihood you will keep being invested?