This article presents an asset allocation case study that assesses the common question of whether to have a tactical asset allocation (TAA) process or not.
I like that it is systematic, but I am not sure after friction, trading costs, leads and lags that this simple approach will generate enough return to justify the activity. But I like your explanation and definitions and potential approaches to enhancing the TAA>.
Thank you for your input, Garrett. It is true that transaction costs matter. Since the portfolio constraints are quite simple (long-only, four broad assets), the turnover in the TAA portfolio is actually quite low. Many institutional investors should have trading agreements where the trading costs do not erode all the gains. We should also remember that these ETFs have the standard holding cost. Many institutional investors can get indexing cheaper or implement tactical trades using derivatives. In summary, I think the yearly 0.2%-0.3% minimum extra performance is representative of what institutional investors actually can expect.
I like that it is systematic, but I am not sure after friction, trading costs, leads and lags that this simple approach will generate enough return to justify the activity. But I like your explanation and definitions and potential approaches to enhancing the TAA>.
Thank you for your input, Garrett. It is true that transaction costs matter. Since the portfolio constraints are quite simple (long-only, four broad assets), the turnover in the TAA portfolio is actually quite low. Many institutional investors should have trading agreements where the trading costs do not erode all the gains. We should also remember that these ETFs have the standard holding cost. Many institutional investors can get indexing cheaper or implement tactical trades using derivatives. In summary, I think the yearly 0.2%-0.3% minimum extra performance is representative of what institutional investors actually can expect.