Investment strategy
February 5, 2021

Adaptive Valuation Strategies: A new approach to strategic asset allocation

February 5, 2021
Gregory Van Inwegen
Global Head of Quantitative Research and Asset Allocation - Citi Investment Management
Paternoster square, London

Revised strategic return estimates for 2021 and beyond as well as an overview of our AVS methodology.

Though we have seen equity markets rebound, central bank interventions have kept interest rates low since we took the unusual step of issuing a COVID-driven Mid-Year Outlook (MYO) in 2020. Our newly revised Strategic Return Estimates (SREs), released in Outlook 2021 and detailed in our newly published Adaptive Valuation Strategies: A New Approach to Strategic Asset Allocation reflect these new realities.

Changes to the 2021 Strategic Return Estimates include a slightly higher SRE for developed investment grade fixed income and lower SREs for hedge funds, high yield fixed income, and emerging debt among others.

This piece also provides an overview of the AVS methodology, which differs significantly from traditional asset allocation in numerous ways. These include an approach to risk that prioritizes Extreme Downside Risk over volatility and the utilization of a longer historical time horizon in order to incorporate a greater range historical and economic crises.