Commentary

The business cycle approach to asset allocation

The Asset Allocation Research Team examines how a business cycle approach to asset allocation may add value as part of an intermediate-term investment strategy.

By: Cait Dourney Dirk Hofschire Jacob Weinstein
Updated: 11/30/2023
Key Takeaways
  • The business cycle reflects the aggregate fluctuations of economic activity, which can be a critical determinant of asset performance over the intermediate term.
  • Changes in key economic indicators have historically provided a fairly reliable guide to recognizing the business cycle’s four distinct phases—early, mid, late, and recession.
  • Our approach seeks to identify the shifting economic phases, providing a framework for making asset allocation decisions according to the probability that assets mayoutperform or underperform.
  • For example, the early cycle phase is typically characterized by a sharp economic recovery and the outperformance of equities and other economically sensitive assets.
  • This approach may be incorporated into an asset allocation framework to take advantage of cyclical performance that may deviate from longer-term asset returns.
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AART Active management Asset allocation Business cycle Fixed income Portfolio construction

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