Enhancing portfolio resilience during crisis periods: Lessons from BRICS indices and multi asset strategies

Abstract

This paper uses Markowitz’s mean-variance model to construct an investment portfolio incorporating multiple assets – BRICS equity indices, Gold, crude oil, bonds, and cryptocurrencies. The optimally created risky portfolios outperform alternative portfolio optimization methods – the naive portfolio and the equal risk contribution portfolio; and established indices – the S&P 500 and the MSCI Emerging Equity Index in terms of metrics – adjusted Sharpe ratio, modified Sharpe ratio, and the modified Value at Risk. The findings are validated across different periods, including the COVID-19 period and the Russian invasion of Ukraine, including various in and out of sample periods. The findings highlight the benefits of portfolio diversity, mainly using BRICS indices, Gold, and Brent Crude oil, and challenge the notion of limited diversification benefits in BRICS indices found in previous studies. This paper further suggests the potential of emerging market bonds ETF as a diversification option during turbulent economic periods and highlights the limitations of cryptocurrencies in optimizing multi asset portfolios. By adopting the recommended multi asset portfolios, investors can enhance their risk-return trade-offs and achieve superior performance compared to the S&P500 and MSCI emerging indices. Lastly, the paper recommends future research opportunities in measuring portfolio performance and hedging strategies considering risk-adjusted return measurements, transaction expenses, and dynamic rebalancing techniques.

Keywords

• adjusted Sharpe ratio
• equal risk contribution portfolio
• modified Sharpe ratio
• multi asset
• naive portfolio
• risky portfolio