Global Tactical Asset Allocation

The focus on the blog thus far has been a passive buy and hold approach to investing – esentially, how you divy up your pie into slices of world asset classes. However, an active approach to asset allocation may offer some value. Tactical Asset Allocation is defined by Investopedia as an

“active management portfolio strategy that rebalances the percentage of assets held in various categories in order to take advantage of market pricing anomalies or strong market sectors. “

What is that exactly? Three great reviews below:

Global Tactical Asset Allocation – Goldman Sachs
Manufacturing Alpha from Beta – Integra Capital
TAA Comes Back from the Dead – Goldman Sachs

From the Goldman overview:

In essence, GTAA aims to:
• Improve the overall return per unit of risk (information ratio) in a client’s portfolio through active management of asset allocation deviations
• Generate excess returns uncorrelated with traditional sources of active risk • Meet individual clients’ needs and objectives through customized portfolios
• Employ minimal capital with limited disruption to underlying managers

There a couple ways to enact GTAA, and the most common are 1 – value and mean reversion strategies, and 2 – momentum and trendfollowing strategies.