Well, that title is a little click-baity… but not false! It may sound too good to be true, but enhanced portfolio construction over the past 5-years, which is approximately the start of the new “regime” (post-COVID), has been very effective.
Risk premium – the compensation investors receive for taking on risk – changes over time as asset prices and valuations shift, and hence, portfolio construction should also adapt dynamically. This allows portfolios to maximise expected returns, even in lower-return environments such as today.
Traditional Strategic Asset Allocation (SAA) portfolios, however, are largely static in nature. Their asset allocations are constrained within fixed ranges or “bands”, meaning they cannot dynamically adjust to changing market conditions. As a result, these portfolios can experience materially different levels of risk over time despite still being labelled as “Balanced” or “Growth” portfolios.
By contrast, Innova’s Risk-Defined portfolios are benchmarked to a targeted level of risk rather than constrained by static asset allocation bands, for example a tolerance of maximum only 5% drawdown rather than “max 30% growth assets”. Unlike traditional SAA portfolios, the Risk-Defined approach allows for dynamic positioning designed to maintain more consistent risk characteristics across changing market environments.
What does that even mean? Instead of writing words, here is a visual representation of the difference:
Because of not being bounded by strict strategic asset allocation bands like typical multi-asset portfolios, the Innova Aspiration portfolio (growth equivalent), may have let’s say anywhere from 65% to 100% growth assets within it, but is strictly bounded by the amount of risk it is able to actually experience (volatility/drawdown) and hence may actually have similar risk to a 67.5/32.5 static balanced type passive portfolio but with a return of a growth portfolio.
If we look at the past at the past 5 years, the Innova Aspiration portfolio has achieved 9.71% return annualized, with a volatility of 7.30%. Interestingly, the Vanguard Diversified Balanced ETF is a 50/50 in growth and defensive assets, and despite the Aspiration portfolio ranging from 65% growth assets to 88% growth asset during that time (based on dynamic asset allocation and changing expected returns), its achieved the same volatility and lower drawdowns than the 50/50 balanced, more classic “SAA” product.
Demonstration of difference in volatility
Despite having similar allocations to growth assets, the portfolios exhibit materially different risk outcomes due to the enhanced construction process and dynamic nature of the Risk-Defined approach. While it may appear that investors are taking on more growth exposure, and therefore more risk, the reality is that they may be achieving comparable or even lower levels of risk while still meeting higher return objectives.
In fact, the “Aspiration” portfolio, which currently has a similar growth asset allocation to Vanguard High Growth, has exhibited lower volatility than Vanguard Growth, despite Vanguard Growth maintaining a meaningfully lower allocation to growth assets.
If we adjust only for ‘bad risk’ or downside volatility, the “Aspiration” portfolio always has a lower volatility than the Vanguard Growth.
Final Thoughts
We cannot always guarantee perfect returns because asset returns are inherently unpredictable on shorter time horizons. What we can do, however, is engineer portfolios that are more closely aligned with well-established research and implement a deeper understanding of what risk truly is into portfolio design.
In the post-COVID environment, governments have significantly increased fiscal spending and liquidity across the global economy. As a result, macroeconomic volatility has returned, creating a regime where active risk management has become increasingly important and volatility spikes have become more frequent, as evidenced by the data. This environment favours investors with a more nuanced understanding of asset class behaviour and cross-asset correlations.
The data above suggests that, on a return-per-unit-of-risk basis, a dynamic approach to portfolio construction and return/risk estimation, grounded in robust academic research, has historically delivered stronger outcomes. For investors seeking higher returns than those offered by the ‘Balanced’ or ‘Growth’ versions of these dynamic, risk-defined portfolios, increasing exposure to a higher risk category may provide a more efficient allocation of capital than relying on a passive, static multi-asset portfolio.
Quarterly market update | Q1 2026