Abstract
<h3>Practical Applications Summary</h3> In <b>Model Portfolios</b>, which appeared in the Spring 2019 issue of <b><i>The Journal of Wealth Management</i></b>, <b>Debarshi Basu</b> of <b>BlackRock</b>, <b>Michael Gates</b> of <b>BlackRock</b>, <b>Vishal Karir</b> of <b>iHuddl</b>, and <b>Andrew Ang</b> of <b>BlackRock</b> present a three-step framework for developing model portfolios: 1) create a performance benchmark that reflects an investor’s risk tolerance, 2) construct a strategic model portfolio that reflects long-term capital market expectations based on that benchmark, and 3) construct a final tactical model portfolio that rotates the holdings around the strategic model portfolio. The authors suggest that investors use this framework as a repeatable and verifiable process for model portfolio construction. To demonstrate the framework’s usefulness, the authors apply it to two examples: building a strategic model portfolio for multi-asset investing, and building a tactical factor timing portfolio. <b>TOPICS:</b>Portfolio construction, risk management, analysis of individual factors/risk premia, performance measurement
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