If genius is a bull market, it’s been easy to look smart in recent years by holding a multi-asset-class portfolio. That’s been true in total-return terms and the profile holds up after adjusting for risk. But there are hints that the bull run for risk-adjusted performance may be peaking for globally diversified strategies.

As one example, consider the Sharpe ratio for the Global Market Index (GMI). Although this metric remains elevated, it continues to show signs of cresting. GMI is an unmanaged, market-value-weighted portfolio that holds all the major asset classes (except cash).

GMI’s Sharpe 3-year Sharpe ratio dipped to 1.02 in November, well below the 1.12 print for the previous month (red line in chart below). The current reading is still a strong profile for risk-adjusted performance, but the downshift may signal a softer trend for the foreseeable future. The trailing 10-year Sharpe ratio, by contrast, held steady at 0.95 last month (black line).

Meanwhile, drawdown for GMI has been persistently low/nil in recent months. There was a slight red print in November: the index’s peak-to-trough decline was a mild -1.8% following a zero drawdown in the previous month.

GMI represents a theoretical benchmark for the “optimal” portfolio. Using standard finance theory as a guide, this portfolio is considered a preferred strategy for the average investor with an infinite time horizon.

Those assumptions are, of course, unrealistic in the real world. Nonetheless, GMI is useful as a baseline to begin research on asset allocation and portfolio design. GMI’s history suggests that this benchmark’s performance is competitive with active asset-allocation strategies overall, especially after adjusting for risk, trading costs and taxes.

The table below presents additional risk metrics for GMI and its underlying asset classes, based on a trailing 10-year window through last month.

Here are brief definitions of each risk metric:

• Volatility: annualized standard deviation of monthly return
• Sharpe ratio: ratio of monthly returns/monthly volatility (risk-free rate is assumed to be zero)
• Sortino ratio: excess performance of downside semivariance (assuming 0% threshold target)
• Ulcer Index: duration of drawdowns by selecting negative return for each period below the previous peak or high water mark
• Maximum Drawdown: the deepest peak-to-trough decline
• Beta: measure of volatility relative to a benchmark (in this case GMI)