Executive Summary
This white paper explores the performance of several balanced portfolio
allocations in various economic environments and provides insights into the impact of asset allocation on portfolio performance.
In the first part of the article, we analyze the performance of two portfolios over a long period: the Balanced Portfolio (50% equities, 50% bonds) and the All- Weather Portfolio (25% equities, 25% bonds, 25% gold, 25% cash).
We make the following observations:
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The performance of both portfolios fluctuates significantly over time, making it difficult to determine which portfolio performs better.
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The All-Weather Portfolio tends to outperform during periods of rising inflation, while the Balanced Portfolio outperforms during periods of decreasing inflation.
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When interest rates increase sharply, the real performance of the Balanced
Portfolio tends to be negative.
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The performance of the Balanced Portfolio tends to be relatively weak during the two years prior to an economic recession, and to improve significantly in the subsequent period when economic stimulus measures are implemented.
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Correlations between assets also affect portfolio performance. The Balanced Portfolio's performance is better when the equity/ bond correlation is positive, while the All-Weather Portfolio seems to be less sensitive to this correlation effect.
We conclude that maintaining a static allocation over a long period of time is not an optimal solution to navigate the various environments.
In the second part of the article, the focus shifts to regime-based optimal allocations. We introduce additional asset classes such as international equities and bonds, equity sectors and styles, alternative assets and real assets. The analysis aims to construct better-diversified portfolios to navigate the different economic regimes of the past 50 years.
Read more via the link: 2023_07_asset_allocation_find_the_right_gb.pdf (candriam.com)
