Episode summary
An AI Bubble Could Hit Stocks. Inflation Could Hit Bonds. How Do You Diversify and Keep Both?
Excess Returns
· · 56 min · Hosts: Corey Hoffstein, Adam Butler · Guests: Matt Zeigler
Summary
The conversation centers on why diversification is harder to maintain than it looks on paper, and why that challenge may matter more now. The guests argue that advisers are increasingly worried about both sides of a traditional 60/40 portfolio: bonds may be vulnerable if inflation persists, while stocks may be exposed to concentration risk and an AI bubble. In that setting, return stacking is presented as a way to add diversifiers without forcing a painful either-or choice between the core portfolio and the new sleeve.
A major theme is that low correlation is not the same as protection. The guests emphasize that even a strategy with no stock-market relationship can still lose money when equities fall, and that investors often abandon alternatives during drawdowns long before any long-term benefit shows up. They use managed futures as the clearest example of a “cash plus” strategy that can be layered on top of stocks or bonds using futures, while keeping the core allocations intact.
They also revisit portable alpha and 2008 to show why structure matters. The lesson is that liquid, turnkey implementation reduces the risk of being forced to sell the wrong asset at the wrong time, but leverage still demands discipline around collateral and client patience.
Key takeaways
- The guests argue that 2026 looks like a better time than usual to think about diversification because both inflation risk and AI/concentration risk are pressuring the classic 60/40 book.
- Return stacking is framed as a “yes and” structure: investors keep core stocks and bonds while adding a diversifier on top instead of selling something to make room.
- Managed futures are presented as the most practical overlay because they are capital-efficient, long-lived in live trading, and have historically helped during crisis and inflation shocks.
- The guests warn that low correlation does not mean a diversifier will rise when stocks fall; it only means the path is hard to predict.
- They argue that the biggest obstacle is behavioral: most investors are more likely to cut a strategy in a drawdown than to add to it.
- Portable alpha failed in part because funding structures were mismatched to liquidity needs during 2008, which is why turnkey, liquid stacks matter now.
Notable quotes
“you you can't put yourself inside the back test um in the way that the investor needs to live through it”
“Many many many more people are likely to cut the strategy than they are to double down”
“more diversification is both theoretically and empirically a better thing for those types of investors”
“what if you didn't have to make that either or choice”
“diversification means zero correlation rather than negative correlation”
How the episode opens
You you can't put yourself inside the back test um in the way that the investor needs to live through it. — But they're more and more fearful about a potential AI bubble. — Feel like we can't really look around the corner out past the next year or two in terms of the impacts that AI is going to have.
Many many many more people are likely to cut the strategy than they are to double down. — I do think that now might be a better time than at other periods to think about this form of diversification, — Right? And so more diversification is both theoretically and empirically a better thing for those types of investors. You're watching Excess Returns, the channel that makes complex investing ideas simple enough to actually use, where better questions lead to better decisions. I'm Matt Ziggler, cultish creative in all the places. Today my guests fresh off an amazing symposium out in Chicagoland post Halloween snack pack of return stacks on excess returns kids. Cory Hoffstein first and foremost. How you doing
Matt? Thank you for having me. I am I'm still coming down from the the postad adrenaline high that is having your own symposium.
I've explained to people I feel like it's like you know planning a wedding. Uh it's just you got 150 people coming and you got dinners and breakfast and the whole day of activities and everything that surrounds it and you're going going going and then it's you know you spend nine months planning for it that it's over and uh still coming down from it but it was just a fantastic event for us and the feedback's been phenomenal and I guess next year we'll try to do it bigger and better.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai bubble
- inflation shock
- portfolio diversification
- managed futures
- managed leverage and collateral
Companies and tickers mentioned
- AQR Capital Management
- Return Stacked
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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