It’s that time of year! Monitoring economic developments and market dynamics is a never-ending job. Economics and markets are in a constant state of flux, affected by oscillating commodity prices, changing consumer demands, technological developments, and international trade, to name a few. At least annually, we memorialize what we are seeing and create forward-looking expectations. We have begun such work, contributing to managing your portfolios and concluding with a formal write-up due later this year.
Our process is anchored by long-term statistics augmented by secular research (such as demographic data and deployable technological advancements), cyclical information (such as economic and business changes), and fluctuating market valuations.
We believe that economic fundamentals provide the backdrop for asset markets, influencing corporate earnings, interest rates, inflation, and many other factors that affect returns of stocks, bonds, and other asset classes. The methodology for our approach combines empirical research with foundational principles underlying relationships between economic growth and asset performance.
We believe that by understanding the fundamental drivers of each asset class—based on historical observations and interrelationships spanning several decades and countries in different stages of development—we can execute a more comprehensive, global, and forward-looking approach to asset allocation, resulting in desirable risk-adjusted returns for different investment needs and time horizons.
Our asset allocation framework provides a thorough understanding of asset characteristics across various time horizons, which we then use to derive conclusions about portfolio construction. By analyzing the returns, risk, and correlation characteristics of various asset classes across different durations, we can draw conclusions about how changing macro and market conditions may affect the relationships among the various asset categories, and we can develop insights on how to combine assets based on these expectations.
There have been a number of divergent factors that in 2025 contributed to a higher influence of the “art” of capital market assumptions (CMAs) relative to the “science” of CMA calculations. We look forward to publishing our formal write-up in the coming weeks, highlighting changes that may affect your portfolio.
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