Core Insights - The asset allocation for 2026 faces both long-term and short-term challenges, with a transition into a low-interest-rate environment impacting the effectiveness of traditional stock-bond hedging strategies [1][4] - There is a shift in investor risk appetite, moving from extremes towards a more balanced approach, influenced by increasing confidence in China's governance and the positive outlook for the technology sector [1][4] Long-term and Short-term Challenges - Long-term, the low-interest-rate environment will diminish the historical stock-bond hedging effectiveness [1][4] - Short-term, the transition between old and new economic drivers has led to polarized risk preferences among investors, which are now stabilizing [1][4] Focus on Income Generation and Risk Reduction - In a low-interest-rate context, the focus should be on income generation through diversification into two asset categories and risk reduction using three specific tools [1][4] - Historical examples from mature markets, such as the Yale Endowment and Bridgewater, highlight the importance of expanding into overseas and alternative assets for income generation [1][4] Strategies for Low and High Volatility - For low volatility strategies, there is an emphasis on domestic trading opportunities in fixed income and overseas yield opportunities, while equity investments are shifting from dividends to mid-cap blue chips [5] - High volatility strategies should focus on risk control, including diversifying overseas assets beyond US stocks and reallocating some technology investments in A-shares to mid-cap blue chips [5] Passive and Active Management Approaches - The asset allocation strategy for 2026 is characterized by a "passive as shield" approach, focusing on diversification through passive asset allocation, including commodities like gold and alternative assets such as REITs [6] - The "active as spear" approach emphasizes active management in low volatility strategies for flexibility and high volatility strategies for risk mitigation, including style rotation in equities and seeking active trading opportunities in bonds [6]

Core Insights - Asset allocation is not just about risk diversification; predicting returns is equally important. The report emphasizes that the significance of asset allocation lies in systematically designing strategies that allow investors to leverage their predictive abilities, enabling those with a 60% win rate to outperform those with a 40% win rate [5][8] - The allocation approach can be categorized into passive and active types. Passive strategies focus on risk diversification, while active strategies, such as Mean-Variance Optimization (MVO) and Black-Litterman (B-L), aim to enhance returns while considering risk [5][8] - Active asset allocation's core is return prediction and risk penalty, where risk is defined as "uncertainty." For professional investors, asset volatility is not risk if they can predict it; thus, true risk stems from inadequate predictive ability [5][11] MVO Model Application - The MVO model is suitable for active asset allocation, with its derivatives like the B-L model incorporating subjective views on returns. However, the model is sensitive to input variables, which can lead to concentrated positions in a few asset classes [9][10] - The MVO model requires high accuracy in return predictions, which is both a limitation and a value. It allows investors with a predictive edge to construct effective asset allocation strategies [10][29] Active Asset Allocation Scenarios - Active asset allocation can be applied in two scenarios: directly obtaining allocation schemes or enhancing passive allocations with active strategies. The latter involves using passive models to establish a base and then applying active strategies to enhance returns on assets where predictive capabilities exist [36][43] ETF-Based Active Asset Allocation - The report discusses an ETF-based active asset allocation strategy, replacing traditional indices with investable ETFs. This includes using an industry rotation strategy for equities and bond ETFs to replicate mixed bond fund indices [49][51] - The active ETF allocation strategy can be categorized into two types: one directly based on MVO and the other combining a passive strategy with MVO enhancements [59][60]