This study provides several insights into asset allocators. The traditional approach to building a mixed asset portfolio puts the emphasis on the physical allocation between asset classes. Rightly so, this approach has been surpassed by the modern approach based on factor risks.
It is not about how much an asset allocator needs to invest between government bonds, credit or equities. The right approachshould be on how much an asset allocator wants to devote to the duration, credit and equity risks.
Charles Younes is research manager of FE