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This year has been marked by heightened volatility and deepening uncertainty. With unresolved tariff negotiations and ongoing geopolitical conflicts, markets have responded with sharp fluctuations. In April, the VIX – a key measure of market volatility – spiked to its highest level since the Covid-19 pandemic.
Since 2022, both equities and bonds have more frequently posted negative returns in tandem, a rare and troubling trend. In this environment, traditional portfolio construction methods are being tested. We believe a new approach is needed – one that embraces uncertainty.
Introducing a new strategic allocation framework
To help our clients build more resilient portfolios, a new strategic asset allocation framework was introduced in July 2025, the result of a year-long study and stress testing of over 120,000 portfolios.
It is designed to deliver more stable returns across market cycles by directly incorporating uncertainty into the portfolio design process.
The new framework introduces three major enhancements that set it apart from traditional approaches: First, we have adopted a technique called robust optimisation, used by institutional investors and quantitative hedge funds. This is the first time an Asian private bank has applied it to strategic asset allocation.
Unlike more widely used approaches such as mean-variance optimisation (MVO) or market cap-weighted benchmarks, robust optimisation accounts for uncertainty in expected returns and naturally leads to more diversified portfolios – without the need for artificial constraints.
Second, we developed a proprietary simulation engine to test how portfolios perform under a wide range of market scenarios. This engine, built over several months, uses a mix of machine learning and heuristic techniques to guarantee diversity of outcomes and refine portfolio construction. While simulation engines are rarely used in private banking due to their complexity, we saw it as essential to building a framework that is both rigorous and practical.
Third, we also introduced a more tailored approach to alternative investments. Based on client objectives – whether income, capital accumulation, or a mix – we provide detailed recommendations across private equity, private credit, hedge funds, and real assets. While robust optimisation isn’t yet applicable to alternatives due to limited data, we’re monitoring developments closely and are open to integrating it in the future.
From product-led to portfolio-led thinking
This framework reflects a broader shift in investor expectations. Clients today are more sophisticated and seek portfolio-led solutions tailored to their goals, risk appetite, and market outlook. Our approach encourages “portfolio thinking” – evaluating each investment by its contribution to overall portfolio risk and return, rather than in isolation.
Relationship managers and investment advisors use the framework to evaluate client portfolios, which are structured into two parts: the anchor and the enhancement.
The anchor portfolio – comprising cash, public markets, gold, and alternatives – is the main risk-bearing component, with robust optimisation applied to the public markets segment. The enhancement portfolio allows for more idiosyncratic or concentrated exposures based on client preferences.
Ultimately, our goal is to help our clients think more like institutional investors – embracing diversification, managing risk holistically, and building portfolios that are resilient in the face of uncertainty. With the right tools, data, and expertise, we believe this is the right time to make that shift.
Dr Owi S Ruivivar is the chief portfolio strategist at Bank of Singapore.
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