Practical Guidelines for Tactical Asset Allocation Strategy Evaluation

Abstract

The success of tactical asset allocation (TAA) strategies subsequent to the “tech” bubble and the low equity return expectations have led to renewed interest in TAA strategies. Our analysis of TAA managers shows that, while some TAA strategies have added value, on average, TAA strategies have not produced statistically significant excess returns over all time periods. We suggest that TAA can add value at the margin, if designed with the appropriate rigor to overcome significant risk factors and obstacles unique to the strategy. This article reviews the role of TAA among other active strategies. Based on our research and a review of the literature, we recommend tools and processes to increase the chance of success of TAA strategies. <b>TOPICS:</b>Equity portfolio management, security analysis and valuation, portfolio construction