Strategic & Dynamic Asset Allocation Research

Strategic & Dynamic Asset Allocation Research

One of the most important features of our approach to asset allocation research is that we begin with a review of the long-term drivers of markets each year. Analysing demographics, structural trends and policy changes can provide a reasoned and informed view of the likely outlook for economic growth, inflation, interest rates and cash flows.

The long-term assumptions are used to determine the strategic asset allocation for our models and customised portfolios. At Harbour Reach, we use the long-term analysis to create the framework for our outcome-focussed strategies. We can also create customised strategic asset allocations to fit any risk-profiling framework, whether it be based on fixed asset class exposures or optimised to meet specific targets.

But it’s not just about estimating returns. Long-term analysis can lead to important conclusions that might not be apparent in monthly or quarterly data. For example, we believe that the global trend away from defined benefit retirement plans to greater adoption of accumulation accounts, as well as the growth in online trading and ETFs will combine to produce greater up-and-down-swings in equity markets. This is an issue that has been highlighted by the IMF as a threat to global financial stability, but few investors have incorporated this structural change into the way that they view how markets work. At Harbour Reach, it has changed the way we view risk and manage beta exposures.

The long-term outlook, therefore, represents an important backdrop for assessing shorter-term dynamic tilts. We add shorter-term forecasts from proprietary models that adapt to more recent market conditions. We also systematically review a number of inputs each month that cover:

  • Economic growth
  • Inflation & commodities
  • Interest rates
  • Credit & counterparty risks
  • Earnings & valuations
  • Sentiment, liquidity & technicals
  • Macro and geopolitical risks