Tactical asset allocation

Overview

• Strategic Asset Allocation
• Tactical Asset Allocation
• Assumptions
• Criticisms
• Recommendation

a client asks what tactical asset allocation is 

what is strategic asset allocation?

strategic asset allocation

• Determine tolerance for risk, investing time frame, & target return
• Set target asset allocation in alignment with investing goals
• Periodically readjust portfolio as market changes
• Similar to a buy-and-hold strategy, rather than an active approach

what is tactical asset allocation?

tactical asset allocation

• Builds upon strategic asset allocation (SAA)
• Investor sets percentage ranges for each asset class
• Frequently adjusted to capitalize on current market anomalies
• Managers return to original strategic asset mix when profits are achieved

Tactical asset allocation cont.

• Less investors in all asset classes create room for market inefficiencies
• Individuals have opportunity to analyze companies within asset classes
• Opportunity to make money through this analysis
• Team of individuals with specialized knowledge in each asset class
• Market is efficient at micro-level, not macro level

assumptions

the client...

• is currently seeking a more active portfolio management strategy
• is disappointed with historical returns that never manifested
• wishes to take advantage of changing market conditions
• wishes to increase risk-adjusted returns

the market...

• is generally inefficient
• or industry the client is investing in is volatile
• warrants that trading fees will not exceed possible gains

Criticisms

criticisms

• It's an attempt to time the market
• Trading fees will undercut gains
• Under Performance (70% under perform)

recommendation

thank you