Understanding Tactical Asset Allocation

Medium Asset Allocation Tactical Asset Allocation

As a portfolio manager, you're considering the application of tactical asset allocation (TAA) to adjust your portfolio based on short-term market conditions. You believe the equity market might be undervalued in the upcoming quarter due to recent economic data suggesting a recovery. Currently, your portfolio has a strategic allocation of 60% equities and 40% fixed income.

Based on your analysis, you decide to increase your equity exposure to 70% in anticipation of strong market performance, while reducing your fixed income allocation to 30%. Which of the following statements best describes the rationale behind this tactical asset allocation adjustment?

Tactical asset allocation is a strategy that aims to enhance returns by taking advantage of pricing anomalies across asset classes.

Tactical asset allocation is only effective in volatile markets and should not be used in stable environments.

Tactical asset allocation involves matching the duration of fixed income to that of the equities in the portfolio.

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