Understanding Tactical Asset Allocation in Portfolio Management

As a portfolio manager for a wealth management firm, you are tasked with advising a client who has a moderate risk tolerance. The client is particularly interested in understanding the concept of tactical asset allocation (TAA) and how it differs from strategic asset allocation (SAA). The client wishes to know how TAA can be applied to adjust the portfolio based on market conditions.

In your response, explain what tactical asset allocation is, its key characteristics, and how it can enhance a portfolio's performance compared to a static approach. Additionally, provide an example of a situation where tactical asset allocation may be beneficial for the client’s portfolio.