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Tactical Asset Allocation (TAA)

What is 'Tactical Asset Allocation - TAA'

Tactical asset allocation is an active management portfolio strategy that shifts the percentage of assets held in various categories to take advantage of market pricing anomalies or strong market sectors.

Explaining 'Tactical Asset Allocation - TAA'

To understand tactical asset allocation, one must first understand strategic asset allocation. During the process of creating an investor policy statement (IPS), factors such as required rate of return, acceptable risk levels, legal and liquidity requirements, taxes, time horizon and unique circumstances are analyzed to settle on a strategic mix of assets to include in an investor's portfolio. The percentage that each asset class is weighted over the long term is known as the strategic asset allocation. This is the mix of assets and weights that will help an investor reach their specific goals.

The Usefulness of Tactical Asset Allocation

Tactical asset allocation is the process of taking an active stance on the strategic asset allocation itself and adjusting these long-term target weights for a short period of time to capitalize on market or economic opportunities. For example, assume that data suggests that there will be a very large increase in demand for commodities over the next 18 months. It may be prudent for an investor to shift more capital into that asset class to take advantage of the opportunity. While the above portfolio's strategic allocation will remain the same, the tactical allocation may then become:


Further Reading


Tracking error and tactical asset allocation
www.tandfonline.com [PDF]
… guided by recommendations and constraints on the weights of assets or asset … Article. Portfolio Optimization with Tracking-Error Constraints. Philippe Jorion Financial Analysts Journal … Article. The Performance of Tactical Asset Allocation. Eric J. Weigel Financial Analysts Journal …

Tactical asset allocation: 1977-1994Tactical asset allocation: 1977-1994
search.proquest.com [PDF]
… guided by recommendations and constraints on the weights of assets or asset … Article. Portfolio Optimization with Tracking-Error Constraints. Philippe Jorion Financial Analysts Journal … Article. The Performance of Tactical Asset Allocation. Eric J. Weigel Financial Analysts Journal …

The performance of tactical asset allocationThe performance of tactical asset allocation
www.tandfonline.com [PDF]
… guided by recommendations and constraints on the weights of assets or asset … Article. Portfolio Optimization with Tracking-Error Constraints. Philippe Jorion Financial Analysts Journal … Article. The Performance of Tactical Asset Allocation. Eric J. Weigel Financial Analysts Journal …

Tactical asset allocation: Australian evidenceTactical asset allocation: Australian evidence
journals.sagepub.com [PDF]
… guided by recommendations and constraints on the weights of assets or asset … Article. Portfolio Optimization with Tracking-Error Constraints. Philippe Jorion Financial Analysts Journal … Article. The Performance of Tactical Asset Allocation. Eric J. Weigel Financial Analysts Journal …

Tactical asset allocation: an artificial neural network based modelTactical asset allocation: an artificial neural network based model
ieeexplore.ieee.org [PDF]
… guided by recommendations and constraints on the weights of assets or asset … Article. Portfolio Optimization with Tracking-Error Constraints. Philippe Jorion Financial Analysts Journal … Article. The Performance of Tactical Asset Allocation. Eric J. Weigel Financial Analysts Journal …

Tactical asset allocation and estimation riskTactical asset allocation and estimation risk
link.springer.com [PDF]
… guided by recommendations and constraints on the weights of assets or asset … Article. Portfolio Optimization with Tracking-Error Constraints. Philippe Jorion Financial Analysts Journal … Article. The Performance of Tactical Asset Allocation. Eric J. Weigel Financial Analysts Journal …

The EVA Style Approach to Tactical Asset AllocationThe EVA Style Approach to Tactical Asset Allocation
jwm.pm-research.com [PDF]
… guided by recommendations and constraints on the weights of assets or asset … Article. Portfolio Optimization with Tracking-Error Constraints. Philippe Jorion Financial Analysts Journal … Article. The Performance of Tactical Asset Allocation. Eric J. Weigel Financial Analysts Journal …

How important is asset allocation?How important is asset allocation?
link.springer.com [PDF]
… guided by recommendations and constraints on the weights of assets or asset … Article. Portfolio Optimization with Tracking-Error Constraints. Philippe Jorion Financial Analysts Journal … Article. The Performance of Tactical Asset Allocation. Eric J. Weigel Financial Analysts Journal …

A multivariate dichotomic approach for tactical asset allocationA multivariate dichotomic approach for tactical asset allocation
link.springer.com [PDF]
… guided by recommendations and constraints on the weights of assets or asset … Article. Portfolio Optimization with Tracking-Error Constraints. Philippe Jorion Financial Analysts Journal … Article. The Performance of Tactical Asset Allocation. Eric J. Weigel Financial Analysts Journal …



Q&A About Tactical Asset Allocation (TAA)


What is tactical asset allocation?

Tactical asset allocation is an active management portfolio strategy that shifts the percentage of assets held in various categories to take advantage of market pricing anomalies or strong market sectors.

What does TAA do?

TAA takes an active stance on strategic asset allocation and adjusts long-term target weights for a short period of time to capitalize on market opportunities.

How can you determine your own personal investment goals?

The investor must analyze his/her financial situation by determining what they want out of their investments. This includes how much money they have available for investing; when they need it; if there are any tax considerations; if there are any liquidity concerns; etc... Once these questions have been answered then the investor can make decisions about how much money should be invested in stocks vs bonds vs cash equivalents etc...

How does one create their own IPS?

By analyzing factors such as required rate of return, acceptable risk levels, legal and liquidity requirements, taxes, time horizon and unique circumstances.

How does one understand strategic asset allocation?

Strategic asset allocation is the process of creating an investor policy statement (IPS) which factors such as required rate of return, acceptable risk levels, legal and liquidity requirements, taxes, time horizon and unique circumstances are analyzed to settle on a strategic mix of assets to include in an investor's portfolio.

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