Tactical Asset Allocation Adjustment Strategy

Very Hard Asset Allocation Tactical Asset Allocation

As the lead portfolio manager at a proprietary trading firm, you have implemented a tactical asset allocation (TAA) strategy aimed at outperforming the market over a one-year horizon. Your analysis indicates that emerging market equities are undervalued based on current economic indicators and geopolitical factors, while developed market equities are expected to plateau in performance.

In light of this, you face a critical decision: how to adjust your equity allocation in the upcoming quarterly rebalance. You currently hold a tactical overweight position in developed market equities of 60%, while your target allocation for emerging market equities is only 20%.

Given the macroeconomic analysis and projections, the following options are available for your TAA adjustments:

Increase the allocation to emerging market equities to 40% and reduce the allocation to developed market equities to 40%.

Maintain the current allocation and wait for further signs of stability in emerging markets before making any changes.

Increase the allocation to emerging market equities to 50% while significantly decreasing developed market equities to 30%.

Hint

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