Cambria Fund Profile – Asset Allocation Suite

Meb Faber · Cambria Investment Management

Sustained higher inflation raises stock-bond correlation, weakening 60/40 diversification when it is needed most.

Citing Vanguard research, sustained higher inflation tends to raise the correlation between stocks and bonds, as seen in the 1950s, 1970s and 1990s. Bank of America noted that a 60/40 portfolio had its worst annualized performance in a century through the first three quarters of 2022, when stocks and bonds fell together for three straight quarters. Rubico's global data back to 1875 showed that when inflation exceeded 4%, the global 60/40 averaged negative real returns of about 2.9% per year. The diversification from bonds can therefore weaken when inflation is high.

“And then there's research from Vanguard showing that sustained higher inflation tends to raise the correlation level between stocks and bonds. We saw it in the nineteen fifties, the nineteen seventies, nineteen nineties.”at 4:02

Meb Faber · Cambria Investment Management

US stocks are very expensive and concentrated, so the next decade's returns look subdued.

The Shiller CAPE is around 40 as of end of July 2026, versus a long-run average of roughly 18 to 23 in low-inflation periods and a historical max of about 44 at the height of the dot-com bubble. Historically, that level does not bode well for the next decade of returns. The market is also highly concentrated: a handful of mega-cap technology names make up about a third of the S&P 500, the most top-heavy US market in a long while. So a 60% US stock allocation depends on a few dozen expensive companies, and return expectations should be kept in check.

“And as I'm recording this, US stocks are once again among the most expensive they've ever been in history, as measured by the ten year cyclically adjusted price earnings ratio... From a historical standpoint, that doesn't necessarily bode especially well for the next decade's worth of returns.”at 5:10

Meb Faber · Cambria Investment Management

A 4.75% ten-year Treasury yield is better than near-zero, but does not signal a blockbuster bond decade.

The ten-year Treasury yield was around 4.75% at the end of July. That is a meaningful improvement over the near-zero yields of a few years earlier, but it is not a basis for expecting strong bond returns over the coming decade. Combined with the expensive US stock market, the 40% bond leg of a 60/40 portfolio does not support blockbuster return expectations.

“And the 40 is relying on the ten year treasury yield, which today is around 4.75%... There's no crystal balls in investing and while 4.75 yield on US treasuries is something, and certainly better than the near zero yields we had a few years ago, that combination doesn't necessarily scream blockbuster decade to me”at 6:08

Meb Faber · Cambria Investment Management

Credit spreads are narrow with no opportunities today, so the GAA fund holds T-bills.

The fund's value tilt in bonds rotates away from bond segments trading at narrow yield spreads over Treasuries and toward segments where spreads are wide, using yield spread as the value proxy. When spreads are narrow and no opportunities exist, as is the case today, the fund allocates to T-bills. This positioning reflects the view that credit spreads are too tight to offer value right now.

“We do that by adding tactical exposure to tilts away from bond segments trading at narrow yield spreads relative to treasuries, and towards segments where the spreads are wide. When spreads are narrow and opportunities don't exist, like today, it allocates to T bills.”at 11:17