Strategic and Tactical Asset Allocation

Abstract

Strategic asset allocation (SAA) is closely related to the decision concerning benchmarks and benchmark choice. The strategic asset allocation decision — as opposed to the tactical asset allocation (TAA) decision — is the long-term investment allocation decision, and as such is widely believed to be the single most important decision in the investment process. The decision essentially involves deterrnining an appropriate long-term allocation of funds according to long-term expectations about the future risk and return of assets or asset classes, as well as about the expected correlation structure between the assets. It is not so much a question of attempting to determine the return that one can expect from an asset class, and subsequently the weight to assign it over the long run. Rather it involves taking advantage of the correlation structure of the investable universe, in order to achieve the desired return/risk profile that is desired over the long term.KeywordsTracking ErrorEfficient FrontierActive RiskAsset ManagerAsset AllocationThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.