Strategic versus Tactical Allocation

The logic surrounding SAA is straightforward; a rigorous observation of an asset class’s historical performance overlaid with some contemporary assumptions about future performance in order to approximate an investment mix that best matches an investor’s return and risk expectations.

But investing isn’t simple and expected returns are an average of historical returns, with all the ups and downs in-between. As the market knows, prices of financial assets don’t typically move in a straight line.

Strategic asset allocations are reasonably enduring, ideally set for somewhere between five years to a decade and potentially lasting as long as a generation, on the understanding that intra-period reviews are carefully considered and undertaken to ensure a fit-for-purpose SAA.

Tactical asset allocation (TAA), or the short-term deviation of the investment mix away from the longer-term SAA, is an approach active investment managers use to navigate through the ups and downs of financial asset prices.