Constructing return-target portfolios: A time-varying, valuation-aware approach to asset allocation

Vanguard

Research

14 Pages

Vanguard presents a framework for building return target portfolios that link medium term return goals to evolving market valuations. Using its capital markets and asset allocation models, the paper shows how investors can align a ten year outlook with a specific return objective.

Date published: October 2023

Key Takeaways

Return target definition: Portfolio built to meet an explicit medium term expected return, rather than track a traditional benchmark.
Time varying allocation: Asset weights adjust as valuation based forecasts change, emphasizing long horizon expectations instead of short term timing.
Implementation framework: Process sets a return target, applies forecast driven optimization, then recalibrates and rebalances as conditions evolve.
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