White paper on BCA approach to Portfolio Construction, using Risk Bucket and Risk Utilization as better frameworks than traditional asset-class weighting approaches
The conventional asset-class weighting approach to portfolio construction has appealing simplicity but also several potential flaws. Asset-class weightings do not necessarily convey portfolios’ true underlying risk characteristics. Therefore, we believe Risk Buckets and Risk Budget Utilization are better frameworks to measure portfolio risk vs. expected return, and to better construct adaptable portfolios across various market environments. These frameworks can be used in isolation or as supplements to traditional asset-class weighting approaches.