In this video we explore how combining macroeconomic indicators with financial conditions can enhance portfolio construction and improve the risk-adjusted returns of Quantitative Investment Strategies (QIS), particularly as traditional 60/40 allocations face structural challenges.

BBVA’s Dynamic allocation framework integrates the six-stage US Macro Cycle Indicator (capturing growth and inflation regimes) with the US Financial Conditions Index (FCI), creating a more granular eleven-phase model. This approach helps identify asset rotation patterns across growth, inflation and monetary policy shifts. During the Covid-19 shock, defensive assets led in the first half of 2020, before giving way to cyclical leadership in the second half as conditions evolved.

By overlaying macro signals with financial conditions, this framework has delivered 7.4% annualised returns over the past ten years, with less than half the volatility and just a quarter of the drawdown of a traditional 60/40 portfolio. In today’s recovery environment with loose financial conditions, carry strategies and the BBVA Asset Allocator SMART strategy stand out as key allocations within a multi-asset, all-weather design.

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