Global tactical asset allocation ("GTAA") is a powerful strategy that increases investments in asset classes with the highest potential for appreciation and shrinks allocations to asset classes with greater potential for loss. Many investors tend to run with the pack—they raise their equity stakes when stocks are priced high or just let their allocations drift upwards with markets. By investing in unpopular assets, GTAA displays a contrarian bent.

Our view is that there is little point in taking risk and not getting paid for it. That’s exactly what investors did in 2007 when the S&P 500 offered a dividend yield of only 1.8%, less than half of its long-term average. Similarly, high-yield bonds at that time yielded less than 3% above Treasuries, a spread that historically was more typical of Baa investment grade-bonds than risky “junk” bonds. Other asset classes also failed to pay an adequate risk premium—until the bottom fell out. That’s what GTAA does—buy securities when they are cheap.

The Research Affiliates GTAA strategy uses the firm’s proprietary models to allocate investment funds among a universe of asset classes based on current and forecasted economic conditions. Unlike traditional tactical asset allocation strategies that consider only stocks and bonds, RA’s GTAA strategies allocate investments across a breadth of alternative asset classes including emerging market debt, global bonds, commodities, international equities, and Treasury Inflation Protected Securities (TIPS).

Robert Arnott and RA 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.

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