Total Portfolio Approach: An Innovative Strategy for an Increasingly Complex Investment Landscape

Today’s investors face an ever-evolving landscape The new complexities of today’s environment call for a rethinking of how clients can achieve their goals using investment strategies that go beyond conventional portfolio approaches.

Exhibit 1: Adding private markets to a 60/40 portfolio has historically enhanced returns while minimizing volatility, boosting returns per unit of risk

A measure of valuation that has historically correlated with future equity returns is the CAPE (Cyclically Adjusted Price Earning) ratio. One of the advantages of the Total Portfolio Approach is the freedom to expand on the asset classes included in the portfolio. When one particular asset class, using a historically relationship like the CAPE is indicating lower future returns we can shift, incrementally away from Public Stocks and into Private market asset classes that are less sensitive to high valuations and could provide better expected returns.

Note: 60/40 portfolio comprises 60% public equites (S&P 500 Index) and 40% public bonds (Bloomberg Aggregate Index). 50/30/20 portfolio comprises 50% public equity, 30% public bonds, and 20% private markets portfolio. Rebalanced portfolio was rebalanced on a quarterly basis.

Sources: Bloomberg, Preqin

Given the opportunities in private credit and private equity, the outcome for an investor willing to allocate 10% into both would revise their 60%- 40% traditional portfolio with a 50%, 30% 20% portfolio. This analysis covers a 17.5-year period ending June 2024. The Total portfolio approach using private market investment would have delivered two benefits, higher returns and lower volatility.

Exhibit 2: Correlation of Private Credit with US Aggregate and S&P 500 shows the value of adding Private Credit to portfolios to reduce volatility

The Total Portfolio approach considers diversification across asset classes as one of two important inputs to how much an asset class represents in a portfolio. The fact that private credit as an asset class has 60% correlation with public credit asset class, means that adding private credit will increase returns and reduce portfolio volatility.  That private credit has a negative correlation with SP 500 means that adding private credit will reduce a total portfolio volatility.

Traditional portfolio assets have their limitations.  Stocks and bond, for instance, tend to underperform during periods of high inflation4. During one such period in 2022, high inflation caused significant declines in client portfolios that relied solely on traditional asset classes.

In strategic asset allocation models, a portfolio that seems diversified — with assets across public stocks and public bonds — is still vulnerable to risk factors like high valuations, rising inflation, and unpredictable global trade dislocations that cause those assets to rise and fall together. This negates the benefit of diversification. Traditionally, strategic asset allocation has been limited to mostly public equity and fixed income, with investors tending to stick to the percentages they’ve set regardless of what the market is doing.

Add the recent disruptive tariff developments, and we’re facing even more uncertainty. For decades, the U.S. was considered the singular reserve currency and seen as dependable and safest fixed-income markets for global investors. The question now becomes whether the U.S. is withdrawing from this leadership position. 

At Sandro Wealth, we take the view that a change in investment management approach is necessary as we re-examine the way we balance risk and liquidity while still generating returns. The Total Portfolio Approach (TPA) meets the uncertainty of our time with a sophisticated investment strategy. TPA uses three dimensions: public stocks, public bonds, and private market investments. 

Embracing a New Approach to Portfolio Management

Established in the early 2000s by leading institutional investors worldwide as an alternative to the traditional two-dimensional approach to portfolio strategic asset allocation, the Total Portfolio Approach takes investing beyond traditional constraints. As such, the Total Portfolio Approach offers a more effective portfolio strategy that responds to the evolving investment landscape. 

Rather than filling certain rigid buckets of asset classes, a Total Portfolio Approach holistically looks at the entire portfolio’s goals and objectives. It aims to optimize the complete portfolio’s exposures to risk and return targets, by taking into consideration the current environment and full set of investment opportunities — both public and private market investments. Rejecting traditional methods of asset allocation and passive benchmarks, a Total Portfolio Approach employs a strategy of selecting investment ideas with the highest likelihood of meeting the investor’s goal, regardless of which asset category they belong to. As such, it takes a unified approach to assessing the risk and return of the client’s whole portfolio.

A Total Portfolio Approach is designed to leverage private investment strategies such as private equity, private credit, infrastructure, and real estate. Adopting a more client-centric focus over an asset class bucket approach, Sandro Wealth leverages the Total Portfolio Approach to build customized client portfolios. This enables us to allocate assets in a manner that is tailored and curated to the individual investor’s goals as well as to changing market conditions and opportunities without needing to adhere to traditional rigid allocations like 60% equity and 40% bonds. 

At Sandro Wealth, we anticipate lower returns over the next five to 10 years for U.S. equities. Based on this outlook, we feel the smart move is to avoid having a rigidly set amount of equities in clients’ portfolios. 

Exhibit 3: High public stock valuations can provide an attractive entry point to private markets

Annualized 10-year Forward Returns (periods starting 2000-2013)

CAPE Ratio on
April 23, 2025:
33.24

Note: Chart shows 10-year forward annualized performance of the S&P 500 index and the private markets portfolio, comprised of 50% private equity, 25% private credit, and 25% real assets based on the closing level of the cyclically adjusted price to earnings ratio (CAPE PE) on December 31 of each given year (i.e., the starting point). For example, the CAPE PE was at 15.17 on December 31, 2008, and the annualized performance of the S&P 500 index for the subsequent 10 years was 13.1%. Performance of the private market portfolio measured by the following proxies: Preqin Private Equity Index, Preqin Private Debt Index; real assets represented by three indices equally weighted: Preqin Natural Resources, Preqin Infrastructure, NCREIF NPI. 

Sources: Bloomberg, Preqin

To better understand how a Total Portfolio Approach works and its advantages, let’s break it down into its unique parts.

Taking a Holistic View of Risk and Return

In a Total Portfolio Approach, the focus shifts away from assigning percentages to traditional asset classes and benchmarks, to achieving the client’s goals via a flexible, dynamic allocation of investments best suited for the total portfolio’s outcomes. Rather than limiting and separating the portfolio into two siloed asset classes, as is done with traditional strategic asset allocation, a Total Portfolio Approach model collectively evaluates risks, returns, and objectives across the entire portfolio and all public and private market investments. 

In assessing risk exposure, a Total Portfolio Approach pays more attention to factor exposures such as interest rates, earnings, and volatility that cut across asset classes, in addition to asset class exposures. That’s because many investments now share overlapping exposures, even when they’re in different asset classes. By moving to a factor-based approach, risks are more apparent across the entire portfolio. 

What’s more, analytics tools can be used to assess the impact of factor exposures in various market scenarios.  

Goals-Based vs. Benchmarking

A Total Portfolio Approach also places more emphasis on achieving goals than on outperforming benchmarks. With traditional investing, performance is compared against predefined indices benchmarks such as the S&P 500 for stocks and the Bloomberg US Aggregate Bond Index for bonds. A Total Portfolio Approach, on the other hand, shifts the focus from outperforming a benchmark to an approach that includes benchmarked performance and performance towards a client’s goals. 

There are many clients whose investment goals necessitate a set of public stocks or bonds that don’t align with the standard benchmarks. As such, benchmarks may not reflect the actual portfolio composition. Prioritizing short-term relative performance can also make it difficult to assess progress toward long-term financial goals. A client who continually allocates 60% to public US equities, despite the lower future expected returns and higher volatility, will experience the limitations of simply focusing on beating performance benchmarks.  

A Total Portfolio Approach, on the other hand, prioritizes achieving specific goals instead of rigidly staying the course and chasing relative returns against market indices. After all, what good is allocating to public stocks if future returns are lower than private credit investments? Take the 3-, 5- and ten-year periods ending in April 2025, when bonds generated total returns between -2% to +2%. Rigidly allocating 40% to public bonds that generated low returns at this time would have reduced a client’s likely success in achieving their total portfolio goals.

Success should be measured by total fund outcomes rather than benchmark-relative performance. Taking into consideration all assets, liabilities, and investor objectives, a Total Portfolio Approach focuses on holistic goal achievement instead of improving isolated asset allocations. With this approach, investment decisions are guided by the investor’s objectives.

Portfolio Resilience through Diversification

Unlike strategic asset allocation, which seeks diversification through asset classes, a Total Portfolio Approach seeks diversification by viewing the underlying risk factors, like inflation, interest rates, credit, earnings, volatility, and economic cycles. This is accomplished by incorporating private market investments that add breadth and provide lower correlated exposures in a portfolio — thus potentially reducing risk and enhancing returns without adding to equity or fixed income factor exposures. 

By fortifying the portfolio with multiple factors, a Total Portfolio Approach can help mitigate different type of risks while generating returns across various economic cycles. This requires private market investments that can improve outcomes by gaining exposure to return factors and additional diversification factors which raise the returns with an appropriate risk in a portfolio. 

Total Portfolio Approach and Private Market Investments

In adopting a Total Portfolio Approach, portfolio managers may employ various private market investment strategies to enhance returns and achieve diversification. Widely embraced by university endowments and foundations, the endowment model has become popular with family offices and high net worth individuals looking to preserve and grow multigenerational wealth and achieve long-term family goals.

The endowment model focuses on asset classes, geographies, and sectors to mitigate risk and enhance returns. Along with traditional assets such as equities and fixed income, a Total Portfolio approach includes private market investments such as private equity, venture capital, growth equity, private credit, infrastructure, real estate, and commodities. With an allocation of illiquid private market investments, investors can achieve higher returns compared to traditional securities. 

Indeed, private market investments have shown to historically outperform traditional benchmarks, achieving an annual return of 11.8% over 20 years.1 Comprising 15% if the global investment economy, private market investments represent $22 trillion in assets under management as of the end of 2022.2 That’s no surprise, considering that just 13% of companies with $100+ million in revenue are public, while 87% of the remaining companies are privately owned.2 

. 

Flexibility with More Degrees of Freedom

Offering greater agility and flexibility, a Total Portfolio Approach incorporates a wider range of asset classes and strategies that can be adjusted and adapted in real time. The adaptability of the Total Portfolio Approach allows it to evolve with changing market conditions, varying correlations, mean reverting capital market assumptions, as well as economic and financial market dynamics that require active management for continual adjustments and customization. Compare this to a more a rigid strategic asset allocation approach that only allows adjustments at predetermined intervals. The dynamism of the Total Portfolio Approach also results in portfolios that are more customized and curated around individual investors and their specific goals and needs.

Total Portfolio Approach Advantages

A holistic view of risk and return, goal-based decision making, diversification and portfolio resilience, and increased agility — combined, these qualities inherent in a Total Portfolio Approach translate into several advantages that appeal to high-net-worth investors and the financial advisors who guide their portfolio management.

Improved Returns

A global study by the Thinking Ahead Institute found that a Total Portfolio Approach can add 50–150 basis points annually over traditional public securities strategic asset allocation due to its dynamic nature,  private market investments, greater flexibility, and focus on risk-adjusted returns.3

Enhanced Risk Management

Because a Total Portfolio Approach provides a clearer view of risks across the portfolio, this enables better alignment with long-term objectives. 

Tailored Approach

A Total Portfolio Approach allows for customization to meet and reflect specific client needs, such as liquidity or maturity preferences.

Better Alignment 

With a focus on achieving specific investor objectives instead of relying on benchmarks, a Total Portfolio Approach can result in a portfolio with more goal alignment.

Broader Investment Opportunity

With a Total Portfolio Approach, investments represent a wider opportunity set, including those off the beaten path and private market investments. 

Enhanced Agility

A Total Portfolio Approach provides more degrees of freedom and supports faster decision-making with the ability to react in real time to changing market conditions and new opportunities.

Your Total Portfolio Approach Partner

Once the purview of institutional investors, a Total Portfolio Approach offers the same attractive advantages to individual HNW investors. Sandro Wealth Management partners with financial advisors to capture the benefits of the Total Portfolio Approach in their investment management for their clients, giving them a competitive advantage and compelling right to win HNW clients. 

With over 20 years of experience, Sandro Wealth brings the skills, knowledge, and specialized computational financial technology required to maximize the success of the Total Portfolio Approach. We can help you bring the Total Portfolio Approach to your HNW clients’ investment management with confidence and a competitive edge. Reach out to Sandro Wealth today to learn more.

1. “The Importance of the Endowment Model Investing for Families.” Family Business Association. January 19, 2022. https://familybusinessassociation.org/article/the-importance-of-the-endowment-model-investing-for-families

2. “Innovation Unleashed: The Rise of the Total Portfolio Approach.” CAIA Association. 2024.  https://caia.org/total-portfolio-approach-2024

3. “Total Portfolio Approach: A Global Asset Owner Study into Current and Future Asset Allocation Practices.” Thinking Ahead Institute. 2019. https://www.thinkingaheadinstitute.org/content/uploads/2020/11/Total_Portfolio_Approach-1.pdf

4. Inflation and the Inflation and the U S. . Bond and Stock Markets Bond and Stock Markets I MARKET COMMENTARY BY JIM O’SHAUGHNESSY: APRIL 2011