RavenPack’s latest white paper proposes a multi-asset allocation strategy for hedging against inflation, which maximizes the portfolio's mean-variance criterion by investing in equities, commodities, and bonds based on inflation nowcasts. Backtested against the US equity market, a 10-year US government bond, and six conventional commodity indexes, the proposed strategy outperformed the S&P 500® in terms of return, volatility, Sharpe ratio, and maximum drawdown.
Key Results:
- The proposed strategy can outperform the S&P 500 in terms of return, volatility, Sharpe ratio, and maximum drawdown.
- Our approach delivers impressive real and gross Sharpe ratios of 1.04 and 1.25 (gross), and 0.97 and 1.22 (gross) for headline and core CPI nowcasts, respectively, while catering to risk-neutral investor preferences.
- The risk target approach allows for effective stabilization of portfolio volatility around a desired target level.
- Our risk control approach yields remarkable results, delivering low realized volatility levels of 1.9%, 4.6%, and 7.6%, along with high Sharpe ratios of 2.40, 1.68, and 1.46, and annualized turnover of 132%, 300%, and 468%, when targeting volatility levels of 2%, 5%, and 8%, respectively.
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