Practical Applications of Macroeconomic Dashboards for Tactical Asset Allocation

Practical Applications Summary

In Macroeconomic Dashboards for Tactical Asset Allocation, from the 2018 Multi-Asset Special Issue of the Journal of Portfolio Management, David Clewell, Chris Faulkner-Macdonagh, David Giroux, Sébastien Page, and Charles Shriver (all of T. Rowe Price) see a need for the integration of macro factors into the tactical asset allocation process. The authors emphasize the importance of macro factors for tactical asset allocation while noting that many practitioners find them difficult to use in practice. Therefore, they propose the use of their dashboards to bring discipline into the process of generating trade ideas.

With their dashboards, the authors model asset-class-level pair trades as a function of macro factors, focusing on the forward one-year return that corresponds to the level and direction of the macro factor. The authors also describe the manner in which to use and interpret the dashboards and offer a few caveats to their approach.

TOPIC: Analysis of individual factors/risk premia