Global Tactical Asset Allocation

  • The Deserted Island Portfolio

    Fundamentals  

    October 2013 | John West

    What would a Deserted Island investment portfolio look like, managed without the distractions of cable news and short-term benchmark comparisons?

  • ​Attention 3-D Shoppers

    Fundamentals  

    July 2013 | John West

    Why do retail shoppers love a sale while capital markets flee from falling prices? Investors should consider starting to fill their shopping carts while inflation hedges are cheap.

  • The Lure of Hedge Funds

    Fundamentals  

    April 2013 | John West

    Hedge funds use fancy lures to attract investors but often a simpler approach results in improved returns. A more diversified roster of liquid asset classes that are carefully selected and, ideally, tactically managed will do more for portfolios than the illusion of hedge fund alpha.

  • A Framework for Examining Asset Allocation Alpha

    Journal of Index Investing  

    Q1 2013 | Jason Hsu, Omid Shakernia

    The definition of asset allocation “alpha” remains a poorly defined concept, given the lack of a standard theoretical framework and benchmark for these multi-asset portfolios. This article provides a new way for understanding the sources of added value for asset allocation portfolios.

  • Wait for Your Pitch in Today's Market

    Fundamentals  

    February 2013 | John West

    Great hitting in baseball depends in part on waiting for the right pitch. In today’s market, most asset classes—coming off their impressive 2012 record--are “high and outside” the valuations necessary for future big league returns. Patience is the name of the game today.

  • Eggs are Not Enough: The Truth About Diversification

    Fundamentals  

    October 2012 | Feifei Li

    We learn in finance theory that diversification simply means not putting all your eggs in one basket. Simple as the idea is, most investors do not hold portfolios that are even close to being truly diversified. Risk premiums vary over time—especially when markets get bumpy.

  • Institutionalizing Courage

    Fundamentals  

    May 2012 | Rob Arnott

    Most people tend to measure wealth in terms of the dollar value of a portfolio. We believe it is better to measure wealth in terms of the real spending the portfolio can sustain over the entire life of the obligations served by the portfolio. We call this approach “sustainable spending.” But focusing on sustainable spending requires real courage.

  • The Newlywed's Dilemma

    Fundamentals  

    April 2012 | John West

    A new world of lower expected returns signals a major break from “mainstream” investment approaches. Old investing patterns—for example, tracking error to the ubiquitous 60/40 blend of mainstream stocks and bonds, reliance on “first-world” developed markets, and conventional cap-weighted indexing—may not fit with our new investment priorities.

  • De-Stressing Balanced Fund Investing

    Fundamentals  

    December 2011 | John West

    Balanced fund management has largely become a benchmark-hugging exercise, with asset allocations confined within a tight band. But there are things that can be done to improve the added value investors can obtain from balanced fund investments. First item on the list: look at the benchmark.

  • The Long View-Building the 3-D Shelter

    Fundamentals  

    October 2011 | Rob Arnott

    In the long run, the combination of rising debts and deficits and aging demographics will create a 3-D hurricane affecting capital markets. Creating a "third pillar" to existing developed world equity and bond allocations should produce more meaningful real returns over a market cycle.

Asset allocation needs revisiting

 

Traditional stocks and bonds are the largest allocations in most investor portfolios. In fact, the 60% stock / 40% bond policy portfolio is often considered the “benchmark” for asset allocation decisions. Investors do two things that hamper their long-term portfolio performance. First, they tend to let their asset allocation drift based on the performance of the underlying assets-- or even worse-- chase performance by allocating to the latest best-performing asset class. Second, their portfolios tend to be dominated by domestic stocks and bonds, often tracking capitalization-weighted indices. This is an inefficient way to manage a portfolio.

 

GTAA strategy buys low and sells high

 

Global tactical asset allocation is a strategy that increases investments in asset classes with the highest potential for appreciation and reduces allocations to asset classes with greater potential for loss. Expected returns for different asset classes vary over time and greatly depend on starting valuations. By investing in unpopular assets, GTAA displays a contrarian bent. GTAA uses the constantly changing expectations and emotions of the market to invest in attractively priced assets.

 

More than just stocks and bonds

 

Stocks and bonds are just the two most prominent asset classes. There are a host of other asset classes, such as international equities, emerging market debt, real estate, commodities, TIPs, various credits, real return strategies, that provide far greater diversification than a standard 60% stock / 40% bond portfolio. Investors should employ a full toolkit in building their portfolios.

 

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Long-standing expertise

 

Robert Arnott and Research Affiliates are well recognized in the investment management industry for their expertise in GTAA. The firm is the sub-advisor to the first mutual fund of mutual funds to apply GTAA to alternative asset classes, investing in an array of underlying mutual funds. 

 

Cheap today, expensive tomorrow

 

Why should investors use a GTAA strategy? The answer is simple: Valuations of assets vary all the time. Equities may be cheap today and expensive tomorrow. Conversely, bonds may be expensive today but more affordable in the future. Return expectations shift constantly; sometimes, taking risk is rewarded, sometimes it is not. Buying what is unpopular and selling securities that are in vogue is hard to do. Unfortunately, most investors do a poor job of deciding when to make shifts in their portfolio.

 

An absolute-return approach to investing

 

Our GTAA strategies complement traditional stock and bond portfolios. They provide an absolute-return oriented approach to investing, and are designed to provide protection against inflation-- the main enemy to building and retaining wealth.