A Comparison of Emerging and Developed Economy Portfolio Performance Under COVID-19

Abstract

Orientation: The performance of three different portfolio allocation strategies is assessed in a developed and a developing economy during different economic conditions over a period of seven years. Research purpose: Evaluate the performance of the portfolios – namely, the tangent, minimum-variance, and maximally diversified portfolio – across a developed and a developing economy and investigate the advantages and disadvantages that each portfolio poses in differing economic conditions. Motivation for the study: Understanding the benefits and drawbacks of each of these portfolios in times of crisis and in times of economic expansion could assist asset managers in making effectiveallocation decisions for their portfolios in different economic conditions. Research approach/design and method: Portfolio optimisation under various constraints. Main findings: Tangent portfolios produced superior returns to the other portfolios and the US portfolios consistently outperformed the South African ones. The minimum variance portfolio provided greater returns and downside protection than the maximally diversified portfolio during the COVID-19 market crash for the developed economy, while the opposite was observed for the developing economy. Practical/managerial implications: Practical knowledge of how each of the portfolios perform within different economic climates can assist asset managers to produce positive performance in times of recession and expansion. Contribution/value-add: Information and analysis on each of these portfolio asset allocation strategies during various economic conditions assists asset managers in finding the most effective way to structure their portfolios. Copyright © 2022– All Rights Reserved.