On the Relevance of Strategic and Tactical Asset Allocation for Portfolio Insurance

Risk & Reward, 2020, 2nd issue, pp. 4-10

9 Pages Posted: 5 Jun 2020

See all articles by Martin Kolrep

Martin Kolrep

Invesco

Harald Lohre

Invesco; Centre for Endowment Asset Management, Cambridge Judge Business School, University of Cambridge; Centre for Financial Econometrics, Asset Markets and Macroeconomic Policy, Lancaster University Management School

Erhard Radatz

Invesco

Carsten Rother

Invesco; University of Hamburg

Date Written: April 27, 2020

Abstract

Portfolio insurance can be an appropriate means to preserve a given capital floor, yet the associated risk budgeting parameters need to be tailored to align with the underlying investment strategy. The main determinants are strategic asset allocation as well as the range and accuracy of tactical asset allocation decisions that would help mitigate downside risk. We evaluate the performance of a multi-asset allocation strategy across a vast number of alternative scenarios using block-bootstrap simulations. Based on a simulated tactical asset allocation model, our framework enables us to gauge the impact of assumed forecast accuracy and the tactical asset allocation range on the ultimate portfolio return distribution under a classic dynamic portfolio insurance risk budgeting framework.

Keywords: Portfolio insurance, Tactical asset allocation

JEL Classification: C58, G11

Suggested Citation

Kolrep, Martin and Lohre, Harald and Radatz, Erhard and Rother, Carsten, On the Relevance of Strategic and Tactical Asset Allocation for Portfolio Insurance (April 27, 2020). Risk & Reward, 2020, 2nd issue, pp. 4-10. Available at SSRN: https://ssrn.com/abstract=3597156

Martin Kolrep

Invesco ( email )

An der Welle 5
Frankfurt, 60322
Germany

Centre for Endowment Asset Management, Cambridge Judge Business School, University of Cambridge

Cambridge
United Kingdom

HOME PAGE: http://https://www.jbs.cam.ac.uk/faculty-research/centres/ceam/

Centre for Financial Econometrics, Asset Markets and Macroeconomic Policy, Lancaster University Management School

Bailrigg
Lancaster LA1 4YX
United Kingdom

HOME PAGE: http://www.lancaster.ac.uk/lums/research/research-centres/financial-econometrics/

Erhard Radatz

Invesco ( email )

An der Welle 5
Frankfurt am Main, 60322
Germany

Carsten Rother

Invesco ( email )

An der Welle 5
Frankfurt am Main, 60322
Germany

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

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