Commentary
The business cycle approach to asset allocation
The Asset Allocation Research Team examines how a business cycle approach to asset allocation may add value as part of an intermediate-term investment strategy.
Key Takeaways
- The business cycle reflects the aggregate fluctuations of economic activity, which can be a critical determinant of asset performance over the intermediate term.
- Changes in key economic indicators have historically provided a fairly reliable guide to recognizing the business cycle’s four distinct phases—early, mid, late, and recession.
- Our approach seeks to identify the shifting economic phases, providing a framework for making asset allocation decisions according to the probability that assets mayoutperform or underperform.
- For example, the early cycle phase is typically characterized by a sharp economic recovery and the outperformance of equities and other economically sensitive assets.
- This approach may be incorporated into an asset allocation framework to take advantage of cyclical performance that may deviate from longer-term asset returns.
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The business cycle approach to asset allocation
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Neither asset allocation nor diversification ensures a profit or guarantees against loss.
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