Macroeconomic Regimes for Risk-Budgeted Asset Allocation

Summary

This report summary outlines a risk-budgeting approach to domestic multi-asset allocation conditioned on economic growth and inflation regimes. It describes statistical comparisons of asset behavior across those states and reports rotation patterns: bonds were strongest when growth and inflation declined, equities were relatively strong with rising growth and falling inflation, commodities showed excess returns when both rose, and gold and cash were favored during stagflation. The proposed framework assigns asset risk budgets by regime, then applies tactical adjustments as macro conditions change.

The summary reports quarterly rebalancing backtests and scenario tests. It characterizes the base strategy as low turnover and low drawdown, and says regime-based adjustments improved annual return by 0.5 to 1 percentage point. Including equity dividends and bond leverage raised the reported annual return to 7–9%, with about 4% annualized volatility and a 6–8% maximum drawdown. These are reported historical results, not independent validation. The available text omits the full report, details of regime definitions, asset universe, sample period, transaction costs, and some baseline performance figures, so the results cannot be fully assessed here.

Key ideas

• The framework sets asset risk budgets according to growth and inflation regimes.
• The report describes different relative asset performance across macro states.
• Quarterly rebalancing is used in the reported backtests and scenario tests.
• Tactical regime adjustments are reported to improve annual returns by 0.5 to 1 percentage point.
• Reported results depend on assumptions about dividends and bond leverage, and the supplied summary lacks full methodology.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.