Identifying Tactical Asset Allocation

Tactical Asset Allocation (TAA) is a dynamic approach to managing a portfolio that seeks to capitalize on short-term market opportunities. It involves adjusting the portfolio's asset allocation in response to market conditions and has a goal of enhancing returns relative to a benchmark while managing risk factors.

Consider the following scenarios:

1. A tactical asset allocator believes that technology stocks are undervalued due to market overreaction to interest rate changes and decides to increase allocation to technology.
2. Another investor believes that bond yields will rise and thus decides to decrease allocation to bonds while increasing allocation to equities.
3. Lastly, a tactical allocator holds a constant allocation to equities while adjusting fixed income exposure based solely on macroeconomic indicators without market sentiment considerations.

Which of these actions best exemplifies the principles of Tactical Asset Allocation?