Asset Allocation Framework
The starting point for asset allocation - especially the equity vs fixed income split - is personal, and should be anchored to an investor’s maximum acceptable portfolio volatility. Once this risk level is established, the portfolio can be positioned along an efficient frontier, resulting in a strategic allocation - for example, a classic 60/40 (60 equity / 40 bonds)
From this baseline, tactical adjustments can be considered in response to:
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Macroeconomic regime signals
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Cross-asset valuation spreads (ERP vs real yields vs credit spreads)
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Market turbulence or liquidity stress
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Factor analysis
We support these allocation shifts with clear, inputs .
Asset Allocation: Key Questions Answered
How should I choose my equity vs. bond allocation?
Start from your personal risk tolerance — especially your maximum acceptable volatility.
We then help place your portfolio along an efficient frontier (e.g. 60/40), and offer tools to adjust tactically as conditions change.
Also consider current earnings yields vs. bond yields to favour the asset offering better value — ideally adjusted for risk and volatility.
When should I shift that baseline mix?
When market dynamics change.
We help identify shifts through:
Macro regime signals (e.g. growth, inflation phases)
Valuation spreads (ERP vs. real yields vs. credit)
Turbulence Index (stress regime detection)
Factor dispersion from our QVMRD screen
These inputs highlight when a tactical deviation from your core allocation may be warranted.
How do you handle weighting of volatile instruments?
Beyond standard risk-parity, we work with institutional clients (e.g., Simplify Partners) to refine sizing with techniques like the Cornish-Fisher expansion — accounting for upside/downside skew in return distributions.
What We Monitor
Asset Class | Key Inputs Tracked | Updated |
|---|---|---|
Commodities | Growth/inflation regime, FX trends, supply constraints | Ad hoc |
Credit | Spreads, CDS signals, event-driven catalysts | Monthly |
Bonds | Term premium, real yields, inflation expectations | Weekly |
Equities | QVMRD Model and others | Weekly |
An Example of Advanced Methodology
(Used by Institutional Clients)
For institutional clients like Simplify Partners, we go further - offering guidance on position sizing logic within the portfolio.
In particular, when allocating to volatile or idiosyncratic instruments, we adjust weights not only for volatility, but also for return asymmetry. The Cornish-Fisher expansion, for example, adjusts expected return distributions by incorporating skewness and kurtosis.
Example:
A post-restructuring bond with high volatility but positively skewed outcomes (due to improved credit profile) may be sized more confidently than a stock with similar volatility but downside-heavy tails.
This ensures that sizing reflects the true distribution of risk-adjusted outcomes, rather than backward-looking variance alone.