Harnessing Volatility Targeting in Multi-Asset Portfolios

Key Points

  • The return of volatility in asset markets has caused investors to seek new forms of protection. Volatility targeting, the practice of adjusting the leverage in a portfolio to keep its volatility close to a desired target, has been gaining popularity.

  • The goal of volatility targeting is not enhanced returns, but rather to provide a more stable ride for investors over time. This approach can be applied to both single and multi-asset class portfolios.

  • During periods of extreme volatility, volatility targeting not only manages drawdowns and volatility more effectively than an unmanaged portfolio but can also alleviate panic selling.

  • In addition to volatility reduction, volatility targeted multi-asset strategies, like the Research Affiliates Global Multi-Asset Index, provide the benefits of diversification and increased risk-adjusted returns.