Asset Allocation Implementation in Uncertain Markets

Maria is a senior portfolio manager at a large institutional investment firm. She has been tasked with implementing a new strategic asset allocation (SAA) model for a pension fund with a long-term investment horizon. The SAA model suggests an allocation of 60% equities, 30% fixed income, and 10% alternative investments. Given the current market conditions, characterized by high volatility in equities and rising interest rates impacting fixed income, Maria is considering different methods for implementing this allocation.

She has the option to either use a core-satellite approach or to switch to a tactical asset allocation (TAA) strategy for a temporary period to cope with the uncertainty while still aligning with the SAA. Maria needs to choose the most effective method to implement the SAA model while considering long-term strategic goals and short-term market fluctuations.