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The Perils of Parity

MSCI cordially invites you to a webinar where we will examine the trend of adding leverage to pension plans’ fixed income allocations to achieve “equity-like return with bond-like volatility” for the total plan. We will show that the optimality of adding leverage from a volatility-reduction perspective depends on the correlations between bonds and equities, the relative volatility of bonds versus equities, and the weights of the two asset classes in the portfolio. One of the factors to be considered is that correlations between equities and fixed income have been positive over the long term, except for relatively brief periods during the past decade.

Risk parity portfolios

  • Levered fixed income allocation to reduce portfolio volatility
  • The effect of leverage on portfolio risk-return profile
  • Historical behavior of bond-equity correlations and volatilities

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