Asset Allocation Enhancements: Bonds vs Cash - VP Portfolio Watch | Research

The VP Macro regime is currently neutral (i.e. neither risk-on nor risk-off), suggesting investors should mostly be at or near benchmark weights for equities vs bonds.
Drawing from feedback on our recent Asset Allocation Engine whitepaper, we have added a "duration tilt" component to the Core Asset Allocation strategy presented previously.
We use VP's inflation leading indicators to tilt between AGG and cash in risk-off regimes to reduce exposure to nominal bond underperformance during periods of heightened stagflation risks. We think such periods (e.g. 2022) will arise much more frequently in the coming decades (see previous VP Thematics on The Structural Limits of Fiscal Policy and The Age of Scarcity).