Market Insight - Macro-Sensitive Portfolio Strategies: Macroeconomic Risk and Asset Cash-Flows - March 2013

Mar 18, 2013

In this paper, the second in a series, we show that cash flows earned by different equity portfolios can respond differently to persistent macroeconomic shocks to real output, and that these differences can emerge over longer time horizons. Portfolios with cash flows that exhibit a greater long‐run response to macro shocks can command a higher expected return in the long run. As with any other return, the higher long‐run expected return for these portfolios is compensation for risk – in this case, the risk of a persistent shock to trend growth in real GDP.