An active management technique (and an investment style) that reconsiders asset allocations in a portfolio/ fund/ investments in an attempt to adapt to, and take advantage of, market trends or prevailing economic conditions. Tactical asset allocation (TAA) is the process of altering the holdings of asset classes such as stocks, bonds, and cash, in response to short-term developments. It entails adjustments to a portfolio’s asset mix based on short-term market trends and conditions, by rebalancing holdings on a monthly, quarterly, or even semiannually.
TAA strategies involve investing in broad or traditional asset classes—typically equities, fixed income and cash-like securities. Certain exotic asset classes are also subject matter of TAA strategies, including ETFs, and similar instruments (with exposures to real-estate, commodities and credit).
TAA is ‘tactical’ in the sense that at each rebalance period it entails reallocation to asset classes that are forecast to relatively outperform, while reducing allocations to asset classes that may relatively underperform.
By nature, TAA is a dynamic asset allocation strategy, but with a short-term focus.
