Tatical Asset Allocation:
Roth comments: “We believe the addition of asset classes to your existing equity portfolio should be done with the goal of achieving a mean–variance improvement when including the new asset class. The Foundation should invest a major portion of the portfolio internationally, diversified across asset classes . As an example, our ECU Global Tactical Allocation Fund invests in non–US dollar (USD) equities, fixed income, and real estate, as well as in real return assets, such as commodities . The primary inputs to our tactical asset allocation decisions are a long-term outlook for the next three to five years and a six-month short-term forecast for each asset class . The weighted foreign currency exposure of our equities and fixed income mirrors the US Dollar Index, and we value our real estate and real return assets in USD. Exhibit 2 shows our fund’s strategic asset allocation weightings plus investment return and currency forecasts.”
Exhibit 2
Asset class/ asset weightings/ LT Outlook/ ST Forecast
Developed market equities/ 55%/ 9%/ 12%
Developed market fixerd Income/ 25%/ 3%/ 0%
International real estate/ 10%/ 11%/ 12%
Real return assets/ 15%/ 4%/ 7%
Note: Short-term US Dollar Index forecast versus weighted currencies in portfolio: +3%.
47. Based on the return and currency forecasts in Exhibit 2, ECU’s tactical asset allocation shifts would most likely increase weightings in:
Roth comments: “We believe the addition of asset classes to your existing equity portfolio should be done with the goal of achieving a mean–variance improvement when including the new asset class. The Foundation should invest a major portion of the portfolio internationally, diversified across asset classes . As an example, our ECU Global Tactical Allocation Fund invests in non–US dollar (USD) equities, fixed income, and real estate, as well as in real return assets, such as commodities . The primary inputs to our tactical asset allocation decisions are a long-term outlook for the next three to five years and a six-month short-term forecast for each asset class . The weighted foreign currency exposure of our equities and fixed income mirrors the US Dollar Index, and we value our real estate and real return assets in USD. Exhibit 2 shows our fund’s strategic asset allocation weightings plus investment return and currency forecasts.”
Exhibit 2
Asset class/ asset weightings/ LT Outlook/ ST Forecast
Developed market equities/ 55%/ 9%/ 12%
Developed market fixerd Income/ 25%/ 3%/ 0%
International real estate/ 10%/ 11%/ 12%
Real return assets/ 15%/ 4%/ 7%
Note: Short-term US Dollar Index forecast versus weighted currencies in portfolio: +3%.
47. Based on the return and currency forecasts in Exhibit 2, ECU’s tactical asset allocation shifts would most likely increase weightings in:
- real estate and real return assets and decrease equities and fixed income.
- fixed income and real return assets and decrease equities and real estate.
- equities and real return assets and decrease fixed income.