Tactical asset allocation adjusts portfolio allocations based on market conditions from "summary" of Institutional Investment Management by Frank J. Fabozzi
Tactical asset allocation involves making changes to a portfolio's asset allocation based on current market conditions. This strategy allows portfolio managers to respond to changing market environments and potentially capitalize on opportunities or mitigate risks. By adjusting the allocation of assets in response to market conditions, investors aim to improve the overall performance of their portfolios. Tactical asset allocation differs from strategic asset allocation, which involves establishing a long-term asset allocation target based on an investor's financial goals, risk tolerance, and time horizon. While strategic asset allocation provides a roadmap for long-term investment decisions, tactical asset allocation is more flexible and responsive to short-term market fluctuations. Portfolio managers may use a variety of tools and techniques to implement tactical asset allocation strategies. These may include technical analysis, fundamental analysis, economic indicators, and market forecasts. By monitoring these factors, portfolio managers can identify opportunities to adjust the allocation of assets within a portfolio. The goal of tactical asset allocation is to enhance portfolio performance by taking advantage of short-term market inefficiencies or trends. By adjusting asset allocations in response to changing market conditions, investors may be able to generate higher returns or reduce portfolio risk. However, tactical asset allocation also involves risks, as market conditions can be unpredictable and changes in asset allocation may not always lead to improved performance.- Tactical asset allocation is a dynamic and active investment strategy that aims to optimize portfolio performance by adjusting asset allocations based on current market conditions. By incorporating tactical asset allocation into their investment approach, portfolio managers can adapt to changing market environments and potentially improve the risk-return profile of their portfolios.
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