In this three-part series, Will de Baer, Investment Director at Casterbridge, examines the BIG Investment Breakdown and what it means for client portfolios. As the traditional balancing relationship between equities and bonds has weakened, the diversification that many portfolios rely on has been quietly eroded. Will explores why this is happening, what history tells us, and how investors can respond.
The BIG Investment Breakdown
Part 3: The new diversification playbook and how we’re navigating the Big Investment Breakdown
Building portfolios genuinely fit for the world we’re in
Parts 1 and 2 set out the problem: the traditional relationship between equities and bonds has shifted, the structural forces behind that shift are powerful, and the investment landscape is genuinely different to the one that made the 60/40 portfolio so effective for two decades. So what do you actually do about it, and how do clients and investors avoid the hidden diversification trap?
At Casterbridge, our starting point is that we’re completely agnostic about asset classes. We don’t dislike bonds. We don’t favour equities. We go where the evidence takes us, and we allocate to whatever we believe genuinely serves our clients’ portfolios, not what’s convenient, not what the competition are doing, and not what protects us commercially if we’re wrong. As a boutique investment manager, we run money the way we’d want our own money run.
Right now, that means building diversification in a more deliberate and dynamic way than the old playbook required.
A core part of that is liquid alternatives, not as a replacement for bonds, but as a genuine complement. We target six types of alternative strategy: uncorrelated alpha approaches like equity long/short and trend-following CTAs; income-focused and hybrid strategies; defensive absolute return; infrastructure and real assets; balanced return strategies; and return-enhancing allocations. No single one is a silver bullet. But combined, with strategies doing genuinely different things with different return profiles, we have a much better chance of rebuilding the shock absorber that the traditional 60/40 model has lost.
2022 is the clearest demonstration. While conventional portfolios fell sharply, one of our global macro funds returned +26% for the year, having anticipated inflationary pressures and positioned accordingly. An equity long/short fund returned +14% in the same year. And more recently, a US property REIT we hold is up 15% for the year to end of April 2026. These weren’t fortunate accidents, they were the result of our investment managers thinking independently, unconstrained by the herd.
That last point matters. Many of the larger incumbent DFMs in the market know there is a problem with the 60/40 model. But the commercial risk of moving away from what everyone else is doing is one they’d rather not take. It’s safer, for them, to be wrong together than right alone. As a boutique, we don’t have that constraint.
we're long-term thematic investors, focused on four megatrends we believe will define the next decade and beyond: technology and AI, the divided world, demographics, and energy transition.
On fixed income, we remain invested, but dynamically and globally. Favouring shorter duration, with exposure across global corporate debt, government bonds, emerging market local currency debt (which also acts as a natural dollar hedge), and inflation-linked bonds. The opportunity set looks different in different markets and at different points in the cycle, and we keep that full picture in view.
On equities, we’re long-term thematic investors, focused on four megatrends we believe will define the next decade and beyond: technology and AI, the divided world, demographics, and energy transition. We look for the best-positioned companies in each, often the less obvious, pick-and-shovel plays rather than the headline names.
When bonds don’t work, alternatives can step in. When the cycle turns and the conditions for negative correlation return, we’ll be ready to change course. At every stage we’re watching, adapting, and acting. The 60/40 portfolio isn’t dead, but it does need to evolve, maybe: 60/20/20 or a 60/10/30. At Casterbridge, that evolution is already well underway.
If you’d like to understand how we’re positioning client portfolios through the Big Investment Breakdown, we’d welcome the conversation.