Mean Reversion + Valuation = Portfolio Opportunities

Gradient used.

My last article, “Mean Reversion + Valuation = Opportunity” cited eleven asset classes that have opportunity for outperformance in the coming decade. That led me to ask: Can portfolios constructed with these out of favor assets provide superior returns? Specifically, I wanted to know:

  1. How have Contrarian Portfolios performed over long periods when no mean reversion was in play?
  2. What did they do during bear markets?
  3. How might they perform in different future scenarios?

The results showed that two example Contrarian Portfolios outperformed comparable “Conventional Portfolios” over the past 20 years, in two different bear markets, and during a range of future scenarios. However, given the risks and uncertainties, investors must carefully consider whether to adopt such a strategy and to what degree.

To view the complete analysis and what it means for your investing strategy, see this Seeking Alpha Editor’s Pick.