Global Integration in Asset Allocation

Very Hard Asset Allocation Global Integration

As the lead portfolio manager for a large investment fund with a global investment mandate, you are tasked with evaluating the integration of different asset classes across various international markets. Your firm recently underwent a comprehensive risk assessment and determined that the current asset allocation is heavily weighted towards domestic equities and fixed income instruments. Now, your client, a large corporate pension fund, is particularly concerned with the implications of global macroeconomic factors on their investment strategy.

You observe that during periods of high global market volatility, international equities exhibit a correlation with domestic assets that can significantly affect the overall portfolio risk profile. Additionally, there are emerging market equities showing distinct behavioral patterns that may offer diversification benefits compared to developed markets. Given these findings, which of the following asset allocation strategies would best leverage global integration?

Increase the allocation to domestic equities to capitalize on localized market insights, while maintaining a minimal international equity exposure.

Adopt a more balanced allocation approach by increasing the weight of emerging market equities and reducing exposure to low-yielding domestic fixed income.

Shift the entire portfolio to a 100% allocation in international equities to maximize potential global growth without regard to geographical risk.

Hint

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