Today’s issue is a bit of a detour from what you might be used to. But we strongly feel it was worth alerting you to a growing trend we’ve been seeing in our asset management business, Glenorchy Capital.

Over the past months, whenever a prospective client comes to us with their portfolios and accounts they hold elsewhere, we’ve been noticing the same pattern.

For a lot of them (too many of them, we would argue), their asset allocation invariably looks something like this…

Before you pull out a magnifying glass, that’s 45% in US stocks, 25% in bonds, 21% in international stocks, and 9% in PE.

This is for US pension funds specifically. But curiously, the split is largely the same, regardless of the locale — Europe, Australia, Singapore, you name it. Perhaps we shouldn’t be surprised given the heavy indoctrination conditioning investors have been subjected to over the last 10 years or so.

At a glance, the above seems like a model portfolio, right? Diversified across different jurisdictions and asset classes. Right out of the portfolio management textbook.

But a lot of these slices are exposed to the same thing — the AI bubble that we’ve been writing about ad nauseam here.

What’s perhaps most terrifying is that the above is the average pension plan. Meaning, Bob and Mabel socking their money away for their golden years are not even aware of the risks lurking in their retirement portfolios.

It’s not just the US equities that one should be worried about, with the Mag 7 making up about a third of the S&P 500 (which covers 503 stocks). Not to mention that many of the growth stocks in the index are trading at valuations that are completely detached from reality. When those come back down to historical averages, who will tell Bob and Mabel and their millennial grandkids, Kayleigh and Zach, “sorry, but did you realise that your portfolio was sporting valuations that have only existed a couple of times before?”

Now, one might argue the other three slices of the pie are even more problematic. At least, with the US you know what you’re getting (certainly if you’re a reader of these missives).

We’ve spilled a lot of digital ink over the years warning that bonds might not be as safe as your average financial advisor has been telling you, though “had been telling you” is probably more accurate. Given the steep drop in bond prices since 2022, we suspect a lot of them have switched to seeking safety in the Mag 7 (at least those always go up, right?).

Buying sovereign bonds at the tail end of the decades-long debt cycle struck us as clinically insane. Not to mention that investors weren’t even compensated for the risk they were taking.

With interest rates on the rise (and we suspect they have much higher to go), we wouldn’t touch bonds with a barge pole here.

The final two slices — international equities and private equity — also have more in common than you might think. They both have growing exposure to AI, each in their own way.

Chris and Brad recorded an entire video walking through all this in greater detail. You can watch it here. And if you’re looking for a weekend read, we’ve also put together a lengthier report with all the charts, etc. (no email, credit card, or DNA sample required).

Have a great weekend!