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Dynamic Asset Allocation Strategy

Posted by: Amelia Shepherd

September 27, 2016

Conventional asset allocation strategies commonly used in the asset management industry are normally categorised as: 1). defensive, 2). conservative, 3) balanced, 4) growth, and 5) high growth. These passive portfolio strategies are formulated to cater to the varying degrees of risk preferences of investors. Such passive strategies can bear significant downside risk when the market goes bearish, for example, the conservative strategy was not a safe haven when the global market dropped during 2015-2016. To achieve consistent higher returns in challenging environment, we have developed a methodology for dynamically allocating asset classes through the Real-options approach. In this paper, we present the dynamic asset allocation strategy which can be shown to substantially enhance portfolio returns, particularly in volatile investment environment, in contrast to the passive six asset allocation strategies.

 

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