Posted: 19 Mar 2018 Last revised: 27 Aug 2019
Date Written: September 24, 2018
Model portfolios are constructed using passive and active vehicles to help meet specific investment outcomes. We present a rigorous, repeatable framework for designing optimal model portfolios, which (1) selects a benchmark portfolio that reflects a target level of risk; (2) constructs a strategic model portfolio that reflects long-term capital market assumptions; and (3) potentially, but not necessarily, incorporates tactical views in a final model portfolio, rotating positions around the strategic model holdings to reflect short-term market views. Using the framework, we demonstrate the construction of model portfolios for multi-asset class and factor investing applications.
Keywords: Portfolio Construction/Optimization; Strategic Asset Allocation; Tactical Asset Allocation; Single Factors; ETFs; Factor Investing; Implementation
JEL Classification: G11; G17
Suggested Citation: Suggested Citation