Fixed-weight portfolios, such as equal-weighted portfolios or the classic 60/40 portfolio, are simple, but they ignore two quantities that vary substantially through time: Risk and expected returns.
Recent research examines whether relatively simple dynamic rules can improve on these portfolios. I test and extend this idea across several different investment universes.
The approach is straightforward: First, allow portfolios to reduce exposure when risk is high, then add a simple momentum signal and dynamic portfolio optimization.
Across several very different portfolios, these modifications substantially improve risk-adjusted returns in most cases while reducing drawdowns.
