Valuation is a powerful predictor of long-term asset returns, but its power as a performance indicator declines as the investment horizon shortens.
To overcome this, we have developed a macro regime framework to allocate assets dynamically through the various stages of the business cycle over the short and medium term.
We use leading economic indicators to identify macro regimes in a timely manner, and provide empirical evidence of how the prices of equities, credit and sovereign fixed income are driven by the change, not the level, of growth under different macro regimes.
Macro regimes tend to be persistent in the medium term, which allows investors to adapt to the changing economic environment and adjust their portfolios accordingly. It is also important to note that while our macro regimes framework is a very significant and powerful input to our investment process, we do not rely on it on a standalone basis.
It is one part of a well-structured system designed to give us insights into drivers of financial markets and asset prices. We combine macro analysis with market indicators used to assess valuation and momentum, and use risk measures to assess volatility and the credit cycle.
Together, these multiple perspectives help us to create allocations based on a comprehensive view of the opportunities and risks in the marketplace.
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These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are subject to change based on subsequent developments.
Diversification does not guarantee profit or protect against loss.