The drawdowns of major ETFs on this (e.g. EMB / JNK) during the corona crash or 2008 are roughly 2⁄3 to 3⁄4 of how much stocks (the S&P 500) went down. So I agree the diversification benefit is limited. The question, bracketing the point on leverage extra cost, is whether the positive EV of emerging markets bonds / high yield bonds is more or less than 2⁄3 to 3⁄4 of the positive EV of stocks. That’s pretty hard to say—there’s a lot of uncertainty on both sides. But if that is the case and one can borrow at very good rates (e.g. through futures or box spread financing) then the best portfolio should be a levered up combination of bonds & stocks rather than just stocks.
FWIW, I’m in a similar position regarding my personal portfolio; I’ve so far not invested in these asset classes but am actively considering it.
The drawdowns of major ETFs on this (e.g. EMB / JNK) during the corona crash or 2008 are roughly 2⁄3 to 3⁄4 of how much stocks (the S&P 500) went down. So I agree the diversification benefit is limited. The question, bracketing the point on leverage extra cost, is whether the positive EV of emerging markets bonds / high yield bonds is more or less than 2⁄3 to 3⁄4 of the positive EV of stocks. That’s pretty hard to say—there’s a lot of uncertainty on both sides. But if that is the case and one can borrow at very good rates (e.g. through futures or box spread financing) then the best portfolio should be a levered up combination of bonds & stocks rather than just stocks.
FWIW, I’m in a similar position regarding my personal portfolio; I’ve so far not invested in these asset classes but am actively considering it.