Evaluation and Enhancement of Tactical Asset Allocation Strategy

As a portfolio manager at a multibillion-dollar asset management firm, you are evaluating the effectiveness of a Tactical Asset Allocation (TAA) strategy that has been employed for the last three years. The firm primarily focuses on a strategic asset allocation approach but has implemented TAA as a response to perceived market inefficiencies. Recent economic signals indicate rising inflation and geopolitical tensions that could impact traditional assets differently.

In your assessment, you are required to analyze the current tactical asset allocation adjustments made by the firm and their alignment with macroeconomic indicators. Furthermore, address the potential risks associated with frequent reallocations and the implications these may have on overall portfolio volatility and return. Consider performance metrics, such as the Sharpe ratio and drawdown measures, to illustrate the effects of these tactical maneuvers over the last three years. Finally, recommend potential adjustments or enhancements to the TAA strategy based on your analysis that would better position the firm's portfolios in light of the current market environment.