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Regime-Based Strategic Asset Allocation

John Montgomery3 min read

Bouye and Teiletche 2025

“Regime-Based Strategic Asset Allocation” by Eric Bouyé and Jérôme Teiletche was published in the Financial Analysts Journal 81(4) (6 October 2025; DOI 10.1080/0015198X.2025.2558354), the CFA Institute’s flagship practitioner-academic journal. The paper models economic regimes as a mixture of distributions and works out, analytically, what that structure implies for portfolios built under the two dominant allocation methodologies — mean-variance optimisation and risk budgeting. From those analytical results it derives new portfolio-construction methods that exploit macro-regime information through three channels: the composition of the optimal portfolio for each regime, the risk structure of those portfolios, and the long-run (unconditional) probability of each regime.

The conceptual contribution is the placement of regime information: it is folded into strategic asset allocation rather than used as a binary tactical timing switch. Instead of a 0/1 in-or-out decision, the resulting portfolio is a probability-weighted blend of regime-conditional optimal portfolios — closer in spirit to robust long-horizon portfolio construction than to market timing. The abstract states the empirical claim directly but cautiously: macro regime-based portfolios “can outperform traditional asset-based portfolios.” The CFA Institute’s In Practice companion brief and the journal framing emphasise robustness of portfolio construction over a claim of large market-timing alpha.

It appears in this vault as a credible, peer-reviewed CFA-Institute source on Regime-Based Asset Allocation, complementing the practitioner-research thread that also includes Kritzman Page Turkington 2012 and the Shu/Mulvey jump-model allocation work. Its profitability grade is inconclusive — not because the work is weak, but because the full results, sample, costs and robustness tests sit behind the CFA Institute / Taylor & Francis paywall: only the abstract and editorial summary are public, so the vault cannot independently verify whether the reported outperformance survives realistic transaction costs. CFA Institute curriculum material separately and pointedly notes that tactical asset allocation “incurs trading and tax costs” and “can also increase the concentration of risk” — a standard caution that applies directly to any regime-conditioned reallocation. The strategic (rather than tactical) framing the paper adopts is itself a partial mitigation of that cost concern, since strategic portfolios rebalance less aggressively.

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Bouye and Teiletche 2025 supports Regime-Based Asset Allocation Bouye and Teiletche 2025 relates Tactical Asset Allocation Bouye and Teiletche 2025 part-of CFA Institute

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