Does "Optimal" Portfolio Construction Actually Pay Off?
An Out-of-Sample Test of Six Portfolio Construction Methods
Most investors spend their time deciding what to own. Fewer think deeply about how to weigh those holdings. Yet portfolio construction often determines diversification, drawdowns, turnover, and long-run returns just as much as asset selection and signal generation.
Many theoretical portfolio construction methods seem elegant, but few survive real market conditions.
In this post, I test six popular portfolio construction approaches across two very different universes, a multi-asset ETF portfolio and a diversified commodity futures basket, to see which methods actually held up out of sample, after trading costs.
