Research
Asset Allocation and Top-Down Portfolio Construction
In this presentation made to the Financial Accounting Standards Board (FASB) in October 2021, as part of their ‘Think Like an Investor’ series, I draw upon my experience to highlight important issues in top-down multi-asset portfolio construction. I mention well-known empirical findings on the key value addition from asset allocation in portfolio construction, discuss the different types of asset allocation and how capital market assumptions are the foundational block. I also presented my ideas on the increasingly important topic of the financial implications of climate change by presenting a few highlights from my peer-reviewed research paper ‘Incorporating Climate Change in Asset Allocation and Portfolio Construction’, which has been accepted for publication in the forthcoming book titled ‘Climate Change: Managing the Financial Risk and Funding the Transition and Adaptation’, to be published by Risk.net in early 2022.
ESG Investing Part 3: ESG Across Asset Classes and in Asset Allocation
The changing nature of corporations with intangibles driving a greater proportion of enterprise value is a key reason for ESG being an increasingly important data point. ESG has varied impact on return and risk across different asset classes. The use of ESG data started in equities and given the asymmetric return emphasis between equities and bonds (upside capture for equities and preventing downside risk in bonds), is rapidly becoming important in different parts of fixed income given its predictive value over and above the information in credit ratings. This research analyzes recent empirical studies to document the predictive ability of ESG across asset classes (equity, different parts of fixed income, credit, and real assets), how and why it can be used in security selection and asset allocation to design optimal risk-adjusted portfolios.
Inflation Outlook: So Many and Contradictory Forces on Inflation
An outlook on growth and inflation is the starting point for all capital market assumptions, strategic asset allocation, tactical investment strategies and portfolio construction. There are many factors impacting inflation - cyclical or structural issues, the timing of their impact and whether it is inflationary or deflationary, and if inflationary then ‘good’ or ‘bad’ inflation. This research analyzes some key issues to identify the net impact and the most probable inflation outlook along with implications for portfolio construction.
Strategic Equity Allocation Insights
The ‘Buffett Indicator’ defined as [Total Stock Market Capitalization/Gross Domestic Product] in the U.S. is at record high; 2020 YTD average at levels just prior to bursting of the dot-com bubble.