Strategic Tilting - August 2020
By Martyn Wild.
Strategic Tilting Summary
This blog summarises our relative positioning in several key asset classes versus a Strategic Asset Allocation of our own design. Strategic Tilts are based upon our estimate of the probability that an asset's return over the next 12 months will be higher or lower than the last 12 months. Where that probability exceeds a defined threshold, a Strategic Tilt is suggested*.
Changes since last month
There has been only one change for the month, that being an increase in signal conviction for Australian equities. The change from '+++' to '++++' represents our highest level of conviction for an overweight position. Given AEQ is at a maximum level of Strategic Tilting, we present below its non-parametric, probability density function with the current and average 1-year returns also displayed for context. Readers will note that the return of the asset over the past 12 months is considerably below its long-term, average 1-year return.
Notes: Information quoted includes an estimate for trading costs
* Of course, the devil is in the detail. As challenging as it is to come up with a directional tilt in the first place, the real challenge is deciding how that tilt will be funded from an existing portfolio of assets...which is why Strategic Tilting has a 'first, do no harm' policy, i.e. we must have an appropriately high level of conviction before considering a deviation from the Strategic Asset Allocation.
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MARQAM is a privately-owned, boutique consulting company focused on providing superior investment outcomes for clients and greater profitability for businesses. We are not affiliated with any other financial institution
Disclaimer: The information provided here is for interest purposes only and does not constitute investment advice or a recommendation of any kind.