Asset Allocation and TAA

Asset Allocation and TAA - Articles & White Papers

Academic research and professional white papers on asset allocation (both strategic asset allocation and tactical asset allocation). Strategic asset allocation is the long-term investment framework, taking into account a fund's over-arching objectives and/or the nature of the liabilities. Global tactical asset allocation (TAA or GTAA) represents the decision to deviate from the long-term benchmark... in order to gain excess return (alpha) by identifying which asset classes are likely to outperform or underperform in the short-term. Asset management firms are increasingly turning to more disciplined approaches to tactical asset allocation, and this is reflected in the papers receiving the most downloads. Many of the most popular articles are quantitative in nature, for instance examining a quantitative approach to TAA, or examining risk parity, momentum and trend following in global asset allocation. Factor-based investing strategies, which identify the risk factors likely to provide excess returns, are themselves gaining momentum, both for stock selection (smart beta) and for asset allocation. Papers which examine frameworks for assessing risk factors and implementing factor-based strategies are proving popular. For those with a longer-term time horizon, the forecasting of long term equity returns takes on more importance. Hence papers which set out long-term capital market return assumptions have been extremely popular. Key factors taken into account by asset allocators include equity market valuation (is the market cheap or dear?), the earnings outlook, the business cycle and the supply and demand for the asset class. Many quant approaches to TAA focus particularly on "value and momentum." The value in equity markets may be measured by a standard valuation measure, such as the Shiller P/E measure of 10 year CAPE (which tries to strip out the vagaries of a profits bubble or profits drought) or by a proprietary measure, often determined by regression analysis and quantitative backtesting. Papers on "value and momentum" have been very popular, as have papers which ask whether these models can be extended into emerging markets. Often asset allocation policy is driven by factors other than the market outlook. For instance, in liability-driven investment (LDI) the main driver is the nature and term of pension liabilities, whereas with dynamic asset allocation, the fund seeks dynamic downside protection, reducing the allocation to risky assets as the market declines. Papers on dynamic asset allocation and reports on liability-driven investing (LDI) have both proved popular, as has a paper on a new concept termed volatility-driven investing (VDI). Other popular white papers in this section consider alternative beta strategies, the impact of demography (and baby boomer retirements) upon asset prices, long-term investing frameworks and portfolio diversification.
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