Tactical vs. strategic asset allocation : the risk and the return for the investor

Abstract

‘’Investing isn’t about beating others at their game. It’s about controlling yourself at your own game’’ (Graham, 1949). The aim of this study is to investigate Asset Allocation based on two main strategies, Tactical Asset Allocation and Strategic Asset Allocation. It focuses on the risks the investor faces when an asset manager opts for Strategic Asset Allocation or Tactical Asset Allocation and how this may impact the return of the overall portfolio. This study followed a quantitative research approach by using Bloomberg Software to analyse the constituents of the S&P500 across different time periods. Two main portfolios were constructed with their own subdivision of market stocks. Results showed that in terms of risk, Tactical Asset Allocation proved to be the better approach for a risk averse investor. Contrary, in terms of return, Strategic Asset Allocation generates more income.