Looking for ways to protect wealth or plan for retirement is a common activity for small and medium investors. For them, the Spanish asset manager Market Portfolio AM has focused on an investment strategy that is as well known in academic circles as it is uncommon in Spain’s financial offerings: The Market Portfolio.
The proposal rests on an apparently simple idea: to invest in stocks, corporate bonds, and government bonds in the same proportion as these assets represent the global market at any given moment. In other words, not trying to forecast which country, sector, or company will perform best, but accepting the market’s average return with a diversified, low-cost portfolio.
According to data provided by Market Portfolio AM, Spanish investment funds and pension plans have achieved in the last 25 years an average annual return close to 2.5%, barely in line with inflation. Against this, the Market Portfolio would have achieved in that same period an accumulated return near 180%, equivalent to about 4.2% per year, according to the firm’s calculations based on real data from the last eight years and simulations using publicly available GDP data and returns of the main world indices, including an annual fee of 0.3%.
“The Market Portfolio is to buy stocks, corporate bonds, and government bonds in the exact proportions that make up the world at any moment and rebalance annually to adapt to what actually happened,” explains José Diego, founder and CEO of Market Portfolio AM.
The Thesis Is Not New
The Market Portfolio occupies a central place in modern portfolio theory and has been defended by various figures in financial economics. William F. Sharpe, Nobel Prize in Economics in 1990, went as far as to say that “the rational investor should hold the Market Portfolio and nothing else.”
Also Antonio Cabrales, professor at Carlos III University of Madrid, Jaume I Prize recipient, vice-president of the European Economic Association and advisor to Market Portfolio AM, notes that this approach has been considered by academic economists for institutional fund management. “When the European Economic Association created a contingency fund, the economists on the investment committee unanimously proposed creating it in the closest possible form to the Market Portfolio,” he says.
An Alternative to Financial Complexity
Market Portfolio AM argues that one reason this strategy is not more widespread is that the financial sector has historically tended to market more complex products. “Financial institutions sell complexity, not simplicity. The Market Portfolio represents extreme simplicity. And simplicity is the hallmark of effectiveness,” says Diego.
The manager contends that, compared with traditional active management or conventional passive management, the Market Portfolio allows removing intermediate decisions about which assets, regions or sectors to overweight. In its view, the market itself already allocates weights to each asset, country and region efficiently, so the investor does not need a third party to make those decisions for them.
Diego attributes the historically low returns of many funds and pension plans to two main factors: costs and the difficulty of competing for decades against investors with more resources, information and analytical capacity. In this sense, he differentiates between exceptional investors capable of beating the market recurrently, who invest in the Market Portfolio and achieve the average return with reduced costs, conventional passive management, and traditional active management.
Liquid and Investable Assets
The Market Portfolio offered by Market Portfolio AM is built only from liquid and investable assets: stocks, corporate bonds and government bonds. Therefore, assets such as real estate, venture capital or private companies are excluded.
“The reason is simple: building a global, representative, and investable portfolio of real estate, venture capital or private companies worldwide is extremely complex. We focus on what is simple and useful,” explains Diego.
Market Portfolio AM claims to be the only Spanish asset manager offering the Market Portfolio through funds and a pension plan. Its range includes Market Portfolio Equity FI, focused on the stocks of the world’s largest companies; Market Portfolio Corporate Bonds FI, oriented toward global corporate bonds; Market Portfolio Government Bonds FI, specialized in government bonds; and Market Portfolio FI, which replicates the global Market Portfolio with a 45% allocation to equities, 29% to government bonds and 26% to corporate bonds, with annual reweighting.
The firm also markets GDP World Equity PP, a pension plan that mirrors the Market Portfolio Equity FI strategy. According to the manager, these products have no minimum investment and no entry or exit fees, and their annual fees range between 0.18% and 0.40%, depending on the vehicle.
With this offering, Market Portfolio AM seeks to bring to Spanish retail investors an investment strategy widely recognized in the academic field, based on global diversification, low cost, and absence of tactical bets. In an era when inflation, taxation, and fees continue to erode the real returns of savings, the manager argues that the Market Portfolio can become a simple tool to improve long-term investment outcomes.
