Tactical Asset Management Defined

As you may know, I’m big on tactical asset management – an active portfolio management strategy. One of its key principles is sector rotation, a dynamic effort to shift portfolio assets from one industry sector to another in an attempt to outperform the market.

Sector rotation has to do with gauging market cycles & business cycles. A new bull or bear market often turns out to be a prelude to an economic recovery or downturn. (The lag time may be several months.

An essential assumption in sector rotation is that the economy is either improving or faltering to some degree. So there are two steps that must be taken:

  • Identifying the business cycles that commonly correspond to these market cycles
  • Shifting assets to the particular industry groups that do well in these business cycles

When you have a full-blown recession, certain types of businesses do better; when the economy is booming, certain types of businesses do well. To miss this truth is to risk forfeiting some intriguing investment opportunities. Tactical asset management recognizes this truth and employs sector rotation for an investor’s potential advantage.

Would this type of asset management work for you? It is certainly worth a conversation. Call me or email me; let’s explore the possibilities soon.

 

Portfolio Management – Strategic vs. Tactical Asset Allocation as defined by Investopedia

  • Strategic asset allocation calls for setting target allocations and then periodically rebalancing the portfolio back to those targets as investment returns skew the original asset allocation percentages.
    • The concept is akin to a “buy and hold” strategy, rather than an active trading approach.
    • Of course, the strategic asset allocation targets may change over time as the client’s goals and needs change and as the time horizon for major events, such as retirement and college funding, grows shorter.
  • Tactical asset allocation allows for a range of percentages in each asset class (such as stocks = 40-50%).
    • These are minimum and maximum acceptable percentages that permit the IA to take advantage of market conditions within these parameters.
    • Thus, a minor form of market timing is possible, since the IA can move to the higher end of the range when stocks are expected to do better and to the lower end when the economic outlook is bleak.


Michael Fassi, CLU, CHFC is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or mike@fassifinancialnetwork.com.

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Tactical Asset Management
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tactical asset management – an active portfolio management strategy. One of its key principles is sector rotation, a dynamic effort to shift portfolio assets from one industry sector to another in an attempt to outperform the market.
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