Evaluating Tactical Asset Allocation Strategy

As part of your responsibilities at a prestigious wealth management firm, you are reviewing the portfolio strategy employed by your team. The firm has recently begun to emphasize Tactical Asset Allocation (TAA), allowing adjustments based on short-term market forecasts. Your colleague argues that the team should increase equity exposure in anticipation of an economic recovery, while reducing allocation to fixed income. However, another team member suggests that this approach may increase risk significantly given the current market volatility, warranting a more cautious stance.

Your firm’s investment committee has asked for an evaluation of the TAA strategy based on current macroeconomic indicators and market conditions. When considering the potential increase of equity exposure under these circumstances, what is the most appropriate course of action?