Quant · Core
Asset Allocation
Asset allocation is the split of a portfolio across stocks, bonds, cash, and alternatives — the decision that usually dwarfs manager selection.
Definition
Strategic weights are the policy; tactical tilts are the overlay. 60/40, endowment, and risk-parity are allocation designs, not stock picks. Constraints (liabilities, liquidity, taxes) should come before the backtest.
Why it matters
Variance of outcomes is mostly mix, not the third decimal of a manager fee. A wrong mix with a great manager is still a wrong mix.
Case
A 90/10 equity/bond ‘income’ account in 2022 learned that allocation was duration-plus-equity, not a coupon.
How to read it
Write the liability and the worst tolerable drawdown first. Then pick weights. The glide path is part of the allocation.
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