Understanding Tactical Asset Allocation

Very Hard Asset Allocation Tactical Asset Allocation

James is a fixed-income investment strategist at a wealth management firm. He is currently evaluating the use of tactical asset allocation (TAA) strategies to enhance the performance of client portfolios in a volatile market environment.

Recently, he analyzed two primary asset classes: equities and treasury bonds. Given the anticipated interest rate hikes by the central bank, James believes that further increases in rates will lead to a decline in bond prices. Conversely, he believes that the equity market may benefit from the potential growth spurred by increased consumer spending as inflation stabilizes.

In light of this analysis, James is considering adjusting the asset allocation of his clients’ portfolios, specifically increasing the equity exposure while decreasing bond investments in the short term to capitalize on anticipated market movements. Which of the following statements describes the nature of tactical asset allocation that James is employing with his analysis?

Tactical asset allocation focuses exclusively on long-term strategic asset mix and does not involve short-term adjustments.

Tactical asset allocation seeks to exploit short-term market inefficiencies by making temporary adjustments to the portfolio based on market forecasts.

Tactical asset allocation is solely concerned with minimizing risk rather than maximizing returns during market fluctuations.

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