Resolve Riffs Investment Podcast The Pandemic Portfolio - Risk Parity, Convexity, and Multi-Asset Factors in Extreme Markets (EP.13)
Apr 22, 2020
The podcast discusses the impact of COVID-19 on portfolio construction and strategy, the challenges of predicting economic outcomes, the importance of diversification and asset class performance, analyzing market volatility, the implications of maintaining exposure to risk without de-risking, the consequences of not reducing risk and attempting to time the market bottom, the implications of the equity risk premium, valuations, and retirement challenges, exploring benefits of defined benefit pension plans and asset allocation in extreme markets.
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Market Uncertainty and Shocks
- The current market situation presents multiple uncertainties, including the virus, policy responses, and geopolitical factors.
- These uncertainties create a complex interplay of aggregate demand and supply shocks, making it difficult to predict outcomes.
Inflation Blind Spot
- The market has become desensitized to inflation risk, leading to a widespread belief that it won't happen.
- This discounting of inflation risk creates a potential blind spot for markets.
Diversification in Uncertainty
- In highly uncertain environments, re-evaluate diversification by considering different economic regimes like inflation and growth.
- Build a portfolio with asset classes designed to thrive in each regime, acknowledging our inability to predict the future.