The Adaptive All-Weather Portfolio: A New Framework for Resilience in an Age of Inflation and Geopolitical Risk

This thesis re-examines the validity of the traditional All-Weather portfolio, long considered a cornerstone of risk parity investing, in the context of today’s shifting economic regime. Persistent inflation, deglobalization, and heightened geopolitical risk challenge the static asset allocation that once ensured resilience across economic “seasons.” In particular, the reliance on long-duration nominal bonds has become a structural vulnerability. To address this, the study introduces the Adaptive All-Weather Portfolio, an evolved framework built on three innovations: (1) Dynamic Factor Exposure, shifting the allocation focus from asset classes to four key economic factors—real growth, inflation, real rates, and a novel geopolitical risk factor; (2) an Expanded Asset Universe, including “productive assets” such as infrastructure, farmland, timberland, and private equity; and (3) Factor Risk Parity, a portfolio construction methodology that balances risk contributions across fundamental drivers rather than asset classes. Through theoretical development, backtesting (2023-2025), and scenario analysis, the Adaptive All-Weather Portfolio demonstrates superior risk-adjusted returns (Sharpe Ratio: 1.17), lower maximum drawdown (-6.4%), and greater resilience across economic regimes compared to traditional All-Weather and 60/40 portfolios. The thesis concludes that a factor-based, adaptive approach represents a paradigm shift in portfolio construction, offering a more resilient investment framework for the inflationary, geopolitically fragmented and increasingly complex investment landscape of the 21st century.