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

Practical Applications Summary

In Preparing a Multi-Asset Class Portfolio for Shocks to Economic Growth, which appeared in the 2019 Multi-Asset Special Issue of The Journal of Portfolio Management, Eugene Podkaminer, Wylie Tollette (both of Franklin Templeton Investments), and Laurence Siegel of the CFA Institute Research Foundation assert that, since the global recession of 2007–2009, economic growth has become the main driver of many investment strategies, at the expense of portfolio diversity. This higher-risk approach to asset allocation has paid off, but will not always. Taking a historical perspective on economic growth can combat the dangers of recency bias in investing, and encourage investors to prepare for economic shocks through diversification despite the strong recent performance of equities and other related asset types.

TOPICS: Portfolio construction, tail risks, financial crises and financial market history, emerging