'Risk budget' touted to help investors avoid the herd

Keep spare risk capacity - rather than running close to limits - to exploit crises, researchers advise

Investors need not limit themselves to a fixed risk target throughout the economic cycle

Using fixed risk targets to manage asset allocation may be reassuring to investors, but it means missing opportunities in times of tension, according to new research.

A better approach, argue Edouard Senechal and Brian Singer – respectively a macro analyst and the head of dynamic allocation strategies at investment manager William Blair & Company in London – is to determine expected return and expected risk in real time, and use the ratio between them as a measure of "investment opportunity". As