Optimal Global Asset Allocation in a Moderate Risk Portfolio

Consider an investment advisor who is developing a global asset allocation strategy for a client with a long-term investment horizon and moderate risk tolerance. The advisor is evaluating several asset classes across different geographical regions to optimize portfolio risk and return.

The advisor has gathered the following information regarding the expected returns, standard deviations, and correlations of the various asset classes:

• U.S. Equities: Expected Return = 7%, Standard Deviation = 15%
• European Equities: Expected Return = 6%, Standard Deviation = 18%
• Emerging Market Equities: Expected Return = 9%, Standard Deviation = 25%
• U.S. Bonds: Expected Return = 4%, Standard Deviation = 5%
• International Bonds: Expected Return = 3%, Standard Deviation = 6%

Using the information above, which of the following asset allocations would result in the optimal risk-return trade-off for the client's portfolio, assuming the advisor wants to allocate 60% to equities and 40% to fixed income?