5 smart things to know about tactical asset allocation

1. TAA is a viewbased strategy in which asset allocation is based on views of relative asset class performance.

2. TAA involves tactically increasing a portfolio’s exposure to those assets that are relatively attractive and reducing a portfolio’s exposure to overvalued assets.

3. Short-term adjustments in asset allocation are frequently made so that the portfolio can earn higher returns and beat the performance of benchmark indices.

4. Timing and active management of risk are key components of tactical allocation. Entry into asset classes and exits from investments have to be timed correctly.

5. Factors that impact asset class performance are continuously monitored and assessed to take the correct calls.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)