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Allocation history

Unconstrained portfolios demonstrate views of the EV Asset Model in their rawest form as all asset allocations are driven directly by the model. The graphic below shows how asset allocation has evolved for a mid-risk portfolio.

 

In the lead up to the Global Financial Crisis (GFC), the EV Asset Model proposed moving out of equities and into gilts, which helped lessen the market crash’s impact. It also suggested moving out of property pre-GFC, which was opportune. Once markets had bottomed, equities and property were back in favour. The model suggested overweighting these to make the most of one of the longest bull markets in history.

In the last few quarters preceding the Brexit referendum, the model again suggested underweighting property and avoided the devaluation that ensued. Following the vote, our portfolios were back in property to take advantage of subsequent gains. Sterling weakness and predominantly foreign earnings reduced the home bias enjoyed by UK equities. This was captured by the model that recommended its portfolio weighting be increased after the polls.

Over the few quarters preceding 2020, the allocation to corporate bonds decreased steadily while Japanese equities were rising. This again positioned the portfolios well for the COVID-led crisis in March 2020 as Japanese equities were the least worst affected of the developed economies. Credit spreads blew up, which was bad news for corporate bond holdings. Following March 2020, the model suggested increasing the US Equity weight and a resounding recovery for EV portfolios.