"With hindsight, until Covid-19, we should have all had a basket of US assets – cash, equities and dollar-denominated bonds. But you can't repeat what has worked in the past," says Husselbee, giving the example of investors buying Japanese equities "like doughnuts" in the 1980, until they could buy no more.
"Perhaps we've all eaten too many US mega-cap doughnuts, and we need to look elsewhere."
For him, this shows short-term trend following into dollars and doughnuts might make some people rich in the short term, but when events such as Covid-19 rock global markets and things start to unravel, long-term diversification is absolutely vital.
"When I first started in the 1980s, every stockbroker had client portfolios stuffed in UK assets or even just UK equities.
"They claimed they had international diversification through large-cap blue-chip stocks. This ain't necessarily so now," adds Husselbee.
The UK market is approximately 2.3 per cent of the world's GDP by purchasing parity, and has fallen from fourth to sixth place in the list of the world's largest economies since the Brexit vote in 2016.
For diversification, then, investors need to go beyond their own domestic borders, perhaps even counter-intuitively, when the world's biggest powers are retrenching, or 'friend-shoring'.
Asset class and duration
Asset class diversification has also become more critical. Being properly diversified means having exposure to a wide array of asset classes (equities, bonds, cash, alternatives) and durations.
Fahad Hassan, chief investment officer at Albemarle Street Partners, says after the famous pivot of 2019, when the Federal Reserve admitted it was wrong to pursue aggressive rate rises, and began cutting instead, people had been "too quick" to remove bond exposure in their portfolios.
Seeing the near-correlation of equities and bonds in the early days of the pandemic, when everything seemed to fall at the same time, only for equities to rebound strongly, may have made short-term investors think the glory days of bond investing were over.
"Nobody had the foresight in 2020 to think what the ramifications of Covid-19 policy responses would be. We saw money being thrown into the markets by central banks, disruption of global supply chains, and then the 2022 invasion of Ukraine.
"Inflation was the only likely outcome, and with that, rate rises to offset it, making bonds more attractive.
"One of the best things back then would have been to have some level of duration protection through bond exposure."
According to Hassan, while diversified portfolios may have suffered in the short-term, when everything fell at once in March 2020, over the long-term, the protection offered by having bonds of different duration, all paying out regularly, would have helped significantly.
