PT  - JOURNAL ARTICLE
AU  - Redouane Elkamhi
AU  - Jacky S. H. Lee
AU  - Marco Salerno
TI  - Portfolio Tilts Using Views on Macroeconomic Regimes
AID  - 10.3905/jpm.2022.1.438
DP  - 2022 Nov 21
TA  - The Journal of Portfolio Management
PG  - jpm.2022.1.438
4099  - https://pm-research.com/content/early/2022/11/21/jpm.2022.1.438.short
4100  - https://pm-research.com/content/early/2022/11/21/jpm.2022.1.438.full
AB  - Long-term investors tilt their portfolios given their views on the evolving investment landscape. In the literature, portfolio tilting is often implemented with methodologies that use investors’ views on point estimates of conditional assets’ expected returns. These conditional return expectations are notoriously difficult to estimate, and using them often results in unstable portfolio weights when existing methodologies are applied. We avoid such shortcomings by providing a methodology that incorporates views on the likelihood of economic regimes (e.g., growth and inflation surprises) instead. Using data on equities, bonds, and commodities, we show—both in simulation and empirically—that our approach generates stable portfolio weights and outperformance that is minimally affected by forecast errors.