Tactical Asset Allocation (TAA) is an active portfolio management strategy under which the investor makes short-term adjustments to their asset mix. As Kavan Choksi / カヴァン・ チョクシ says, the goal of TAA is to take advantage of expected changes in economic conditions or the market. Rather than sticking to a fixed long-term plan, the tactical asset allocation strategy encourages investors to shift their investment to areas they believe shall perform well in the near future, or move away from those they think shall underperform.
Kavan Choksi / カヴァン・ チョクシ discusses how TAA differs from strategic asset allocation
Tactical Asset Allocation is a market-based approach to managing the investment portfolio. This is an active investment strategy that relies on keeping track of market trends in order to find opportunities to capture the best possible returns. To fully understand the TAA strategy, one has to gauge how it differs from strategic asset allocation, which is a more long-term-oriented approach. Strategic asset allocation involves selecting a target mix of investments, like 60% stocks and 40% bonds, and then rebalancing the portfolio periodically as diverse portions of the portfolio grow or shrink. For instance, the stock portion of a 60/40 portfolio might account for 80% of the value of the portfolio after a particularly robust year for stocks, thereby throwing the asset allocation off its original target. In order to rebalance the portfolio, the manager may sell off some of the stock and make use of the proceeds to purchase bonds, thereby bringing the portfolio back to within its strategic asset allocation.
On the other hand, with TAA, the investors select their target asset allocation when setting up the portfolio. The difference is that they may change their tactical portfolio allocations temporarily in relation to market factors or opportunities. After getting the desired returns for the short-term and the momentum from a specific stock or sector wears off, the investor would go back to the original baseline asset allocation. For instance, if one sees that a particular tech stock is doing well, they may choose to purchase it while prices are rising but are not too expensive. That shifts the allocation from 60% stocks to 70%. A few months later, once the price of the stock levels off, the investor can decide to sell it for a gain, thereby adjusting their allocation in the process to its default parameters. This is tactical asset allocation at work. With strategic asset allocation, the investor would be more concerned with keeping the portfolio at the original target. Whether a particular stock has the potential to do well shall be less important than making sure that they are not getting over-weighted toward stocks or bonds, based on the target.
As Kavan Choksi / カヴァン・ チョクシ mentions, a tactical asset allocation strategy can help investors realize significant short-term gains if a tactical move to buy into a stock or sector pays off. They might achieve better returns over time versus sticking with a strictly strategic asset allocation policy.
