Tactical asset allocation
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Tactical asset allocation (TAA) is a dynamic investment strategy that actively adjusts a portfolio's asset allocation. The goal of a TAA strategy is to improve the risk-adjusted returns of passive management investing.[1]
Strategy descriptions
TAA strategies can be either discretionary or systematic.
Discretionary
In discretionary tactical asset allocation strategies, an investor modifies his asset allocation according to the valuation of the markets in which they are invested. Thus, someone who invested heavily in
Systematic
Systematic tactical asset allocation strategies use a
Considerations
The efficient-market hypothesis would imply that tactical asset allocation cannot increase risk-adjusted returns, since markets are already efficiently priced. If a tactical approach were found that could increase returns without an increase in risk, investors would flock to that inefficiency, and the advantage would go away. Many investors do not accept this hypothesis, however, and believe that inefficiencies in the market persist and can be exploited.
Many factors determine the success of a TAA strategy. The investor needs to have the necessary knowledge, practical investment skills, dedication, and discipline to design and/or execute a successful tactical strategy. The specific market anomalies on which the strategy is based may change or disappear in the future. Other factors such as
Criticism
Investors who utilize the tactical asset allocation strategy generally want to
See also
- Cyclical tactical asset allocation
- Global tactical asset allocation
- Financial risk management § Investment management
References
- ^ "Tactical Asset Allocation – TAA". Investopedia. Retrieved 4 May 2012.
- ^ Jim Baird (December 21, 2009). "Tactical Asset Allocation Offers No Free Lunch". Forbes. Retrieved 4 May 2012.
- ^ Larry Swedroe (March 6, 2012). "Tactical asset allocation – Another ripoff". CBS MoneyWatch. Retrieved 4 May 2012.
- ^ a b Jeffrey Ptak (February 2, 2012). "In Practice: Tactical Funds Miss Their Chance" (PDF). Morningstar Advisor. Archived from the original on November 27, 2023. Retrieved 4 May 2012.
- ^ "Do tactical allocation funds add value?". CBS News.
Sources
- Faber, Mebane T. and Eric W. Richardson (2009). The Ivy Portfolio: how to invest like the top endowments and avoid bear markets. New York: John Wiley & Sons. p. 133. ISBN 978-0-470-28489-6.
- ISBN 0-471-39228-6.
- Ehrhardt, Michael C.; Wachowicz Jr., John M. (1990). "Tactical Asset Allocation – a tool for the individual investor". Review of Business. 12 (3). Business Research Institute, ISSN 0034-6454.