IN TIMES OF CHAOS CHOOSE TO INNOVATE INVESTMENT DISCOVERIES Challenging assumptions in portfolio construction In times of chaos, keeping an open mind to alternative perspectives can help us gain a clearer vision of the path to a better outcome. We believe this mindset applies to portfolio construction techniques. Traditionally, our industry has relied on capital market assumptions (CMAs) that offer estimates of how asset classes might perform in the Brian Jacobsen, Ph.D., CFA, CFP future. While CMAs have had a central position in the design of asset Senior Investment Strategist allocation strategies, we on the Multi-Asset Solutions team believe it’s time to challenge how CMAs are used. In large part, this means downplaying the role of longer-term return estimates in day-to-day portfolio management and elevating the role of expected risk. In our view, a risk-based portfolio construction framework—rather than a traditional asset allocation framework—is crucial for building more Frank Cooke, CFA resilient portfolios, especially in the face of market chaos. We use this Solutions Manager, approach for our institutional clients. Multi-Asset Solutions Team In a nutshell, here’s how it works: 1 We identify asset classes that span the investment universe, representing all major decision points. 2 Next, we set a risk target for each asset class informed by empirical evidence and professional judgment. 3 Finally, we apply a risk targeting process to spend risk across the investment universe to achieve the client’s goal. 18