Although we observe some deviations across the board, the optimisation results for the CPI+2% and CPI+4% targets paint a similar picture. As such, average cross-currency allocations provide a good overview of the common trends in return-target-driven asset allocation over the past two decades.
Over the past 20 years, the asset allocations that satisfied our CPI+ objectives, and minimised portfolio volatility, over a five-year investment horizon have been drifting away from cash weightings. Developed government bonds have filled the gap, but the overall shift to holding more low-risk fixed income assets has fallen substantially.
More specifically, allocations to cash and developed government bonds and corporate debt have decreased by about a third from its starting level in CPI+2% portfolios since December 2005. For CPI+4% portfolios the decline has been larger, falling by half. Simultaneously, allocations to risk assets, such as high yield bonds, equities, and commodities, have crept up, adding a more risk-on flavour to holdings.