In life, people judge themselves against a lot of things; it’s human nature. Most investors judge themselves against the S&P 500, at least many clients do, and so do many professionals, whether they admit it or not. The conversation justifying why returns in any given year are not the same as the S&P is a common one. When markets are going up, everyone wants to match the market. But when markets go down, you better not mimic that performance. It is a tough task, but one that can be achieved through building diversified portfolios.
Strong portfolios don’t happen by accident; they start with intention. A blueprint doesn’t just shape the portfolio – it shapes the conversation around it. In our view, the most overlooked part of portfolio design isn’t the positioning, it’s the lack of a clear framework to define what that positioning even is. That’s why the most critical step comes before any investment is made, setting the foundation. By establishing consistent baselines from the outset, you shift the conversation away from chasing returns and toward understanding how the portfolio is structured and why.
An asset allocation baseline is not some new revelation in the portfolio world. But you might be surprised at how foreign the concept still is. After discussions with many advisor teams, there are a few that have established clear baselines to guide their portfolio conversations. Without a baseline, it becomes hard to articulate how a portfolio is positioned. It also makes it harder to explain what makes your approach different from a competitor. Baselines give you that edge. They allow you to clearly show whether you are overweight or underweight in any particular area of the portfolio.
A baseline keeps the portfolio tied to something. Without it, it is easy for portfolios to drift over time, especially after strong markets. Plenty of teams thought they were neutral on US equities, only to find, from our perspective, they were heavily overweight. Having a baseline in place would have made it much easier to spot whether the rising US equity weight was still aligned with their baseline, or whether the portfolio had drifted too far. A well-balanced portfolio 15 years ago might not look so balanced today without some form of intervention. Having a baseline that is monitored over time helps keep that drift in check.
You can set baselines across multiple areas like asset allocation, geography, market cap, style, or sector. In our view, the two that matter most for consistent portfolio conversations are asset allocation and geographic exposure. Those alone give you strong articulation points when discussing positioning. There’s no official stance on what a baseline should be. Many still default to a 60/40 equity-bond mix, but without context, it says very little about what’s actually inside a portfolio.
The Purpose asset allocation baseline started with the traditional 60/40 structure and made a few adjustments to better reflect how portfolios should be managed. Cash was given its own 2% allocation, taken from fixed income, allowing room to express whether the dry powder is intentional. Certain exposures, like gold bullion or options strategies, aren’t traditional alternatives, but they also don’t fit neatly into stocks or bonds. To account for these, a 5% ‘diversifiers’ bucket was created by reallocating 3% from equities and 2% from bonds. The final baseline landed at 2% cash, 36% bonds, 57% equity and 5% diversifiers.
The starting point for geographic exposure isn’t as rigid as asset allocation. There’s no right answer here either, and it really depends on what you’re trying to achieve with the portfolio. Your goals will naturally influence how you set the geographic baseline. Perhaps a more growth-oriented portfolio will have a stronger focus on US equities, for example.
A 35% baseline to Canadian equities may not align with most global portfolio frameworks, but it aligns with the reality of investing from Canada. Access to the dividend tax credit, limited currency exposure, and a stronger sense of familiarity all support a higher domestic allocation. At the same time, a strong international tilt was important. Equal weight was placed on Europe and Asia, resulting in a little over a third of the equity allocation being directed to international markets. The remaining 30% was allocated to US equities, a number that’s lower than many peers but aligned with our intent to diversify away from US dominance and maintain balance across regions.
Having that baseline helps us stay intentional. Whether we’re tilting more toward Canada, trimming back US, or leaning into international, there is a clear starting point to navigate from. Your baseline doesn’t have to look like ours. It shouldn’t – that’s the point. The benefit of having one is that it reflects how you build portfolios, and it gives you something solid to measure against over time.
Final Thoughts
The industry tends to focus on one question: how did you do versus the market? But what actually matters is how you did relative to what you intended to build. Without a clear blueprint, it’s almost impossible to explain why a portfolio looks the way it does today. And even harder to defend those decisions when market leadership shifts. A baseline isn’t about being right or wrong. It’s about having a blueprint in place, so you’re not just reacting, you’re building with intention and able to tell the story behind every position.
— Brett Gustafson is an Associate Portfolio Manager at Purpose Investments
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