Preparing a Multi-Asset Class Portfolio for Shocks to Economic Growth

Many investor portfolios are propelled by assets tied to economic growth. Over the past two decades, increasing emphasis has been placed on reaching for ever higher returns, with the result that portfolios have become even further skewed toward growth assets. Diversification, a powerful force in portfolio construction, has been hobbled by high common risk factor exposures across creatively named investments that continue to deliver highly correlated returns, mainly driven by equity risk.

These brittle portfolios are especially at risk from a change in global growth regimes because the impact would be felt across a majority of assets rather than being isolated in one corner. For these reasons, preparing portfolios for a realignment in economic growth is a primary portfolio construction decision. One remedy is a renewed emphasis on assets that are less sensitive to growth: bonds, real assets, and some alternatives.

by Eugene Podkaminer, Wylie Tollette, and Laurence Siegel

Link to Full Paper.

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