Implementing Tactical Asset Allocation in Portfolio Management

As a portfolio manager for a high-net-worth individual, you are tasked with developing a strategic and tactical asset allocation plan for the upcoming year. Your individual client has expressed concerns regarding market volatility and is particularly interested in managing risk while also seeking to capture potential upside in equity markets.

Your analysis suggests that current macroeconomic indicators, such as interest rate trends and geopolitical events, present a favorable environment for a tactical shift towards equities, particularly in sectors such as technology and healthcare, which have shown resilience in turbulent markets.

Discuss the principles of tactical asset allocation (TAA) and how you would implement this approach in constructing the client’s portfolio. Specifically, address how TAA differs from strategic asset allocation, the quantitative and qualitative factors you would consider, the expected benefits and risks associated with TAA, and how you would monitor and adjust the tactical positions throughout the year. Be sure to provide a clear rationale for your recommendations and any relevant performance metrics.