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Re-Thinking Strategic Allocation
[By Dr. David Edward Marcinko MBA]
Many successful physician investors, retirement account managers or endowment fund administrators will establish a “strategic” allocation policy that is intended to guide long-term (greater than one-year) investment decisions.
Thinking Long Term?
This strategic allocation reflects the endowment’s thinking regarding the existence of perceived fundamental shifts in the market. Most endowments will also establish a target range or band for each asset class. The day-to-day managers then have the flexibility to make tactical decisions for a given class so long as they stay within the target range.
Terms
The term “tactical” when used in the context of investment strategy refers to the investor or manager’s ability to take advantage of short-term (under one year) market anomalies such as pricing discrepancies between different sectors or across different styles.
Assessment
Historically, tactical decisions with respect to asset allocation were derided as “market timing.” However, market timing implies moving outside of the target ranges whereas tactical decision making simply addresses the opportunistic deployment of funds within the asset class target range.
So, what do you think?
Conclusion
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Filed under: Investing, Portfolio Management | Tagged: asset allocation, Investing, Modern Portfolio Theory, strategic allocation, Tactical Portfolio Management | 3 Comments »
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