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Enhancing portfolio construction via “inflation regimes”
Wesley Phoa
Traditional asset allocation methods often struggle to accurately model a portfolio’s resilience to inflation risk. In this paper, Capital Group Solutions portfolio manager Wesley Phoa explores these limitations and describes enhanced techniques.
Key takeaways:
- Simulation methods for realistically modeling inflation differ significantly from those typically used for asset class returns
- Standard modeling techniques may not fully capture inflationary impacts on asset class correlations
- Existing frameworks can be retrofitted to better account for inflation risk across a broad range of asset classes
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