Quantitative Investment Decisions (QID) Global Balanced Portfolio is a diversified portfolio for investors interested in long term growth. It is one of QID’s tactical diversified portfolios that we offer in our Age/Risk based retirement program. The process starts with a combination of mean variance optimization models that determine the allocation to each of the four asset classes: U.S. equity, Non-U.S. equity, fixed income, and alternative asset classes.
The Global Balanced Portfolio provides a tactical overlay to the base strategic allocation for an investor with a growth risk profile. The tactical overlay is designed to adapt to changing market environments. For instance, the default equity allocation for a growth moderate risk portfolio is approximately 60% U.S. and 40% non-U.S. QID models determine the relative attractiveness between the equity asset classes based on valuation, economic factors as well as technical indicators. The weight of total equity exposure for the U.S. allocation is typically between 80-30%, whereas, the non-US can be between 20-70%. Fixed-income and alternative asset classes can be considered the barbell approach for inflation. A lower inflationary environment is typically positive for fixed-income, whereas, higher inflationary periods are typically positive for alternative asset classes such as agriculture, precious metals, and energy (S&P GSCI TR Index components). We include REITS as an alternative sector and can be considered a fulcrum between the two asset classes as it tends to benefit from both environments. The default risk allocation between fixed-income and alternatives is 75-25%. Based on a proprietary model, the allocation weights between fixed-income and alternatives can range between 75-25% to 25-75%. With many investors concerned with the low level of interest rates, the ability to switch part of the fixed-income allocation to alternatives would appear appropriate as supply/demand factors tighten. Given that the defensive position in the alternative asset class is fixed-income, in a deflationary scenario it would be 100% in Treasuries/cash. In an inflationary environment, the likelihood is that we would be 75% invested in commodities and the 25% position in fixed-income would most likely be in cash, avoiding the loss from longer term fixed-income instruments and increasing in returns as short rates rise.