With the economy likely to slow near term, excess labor demand, a sound housing market and risk impacts from an inverted yield curve should dampen any recession. Moreover, Fed rate cuts to reverse an earlier overshoot are key to achieving a soft landing.
Despite being ineffective in 2022, diversifying asset classes, such as a 3-asset portfolio of TIPS, REITS and commodities, are a straightforward and powerful way to manage macro exposures and elevated equity volatility in a core 60/40 portfolio.
Volatility targeting, adjusting portfolio leverage to keep volatility close to target, seeks a more stable ride for investors over time. Applied to multi-asset class portfolios, the approach can enhance diversification and risk-adjusted returns.
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