There is currently a high demand for tactical asset allocation (TAA) advice but most investors fail to properly measure the value-add of this investment approach, according to Zenith Investments director David Wright.
“All of a sudden there’s massive demand for TAA advice … and I guess I have a problem with that from a couple of perspectives,” he said.
Research that Zenith Investments has conducted over the years has indicated that most investors actually detract from value through TAA activities, Wright said.
“There is a lot of pressure – I understand that – for advisers to do something in reaction to what’s happened to portfolios,” he said.
“But to make large moves in TAA is both very risky from an investment return perspective, but it’s also very risky from a risk perspective.”
Most investors that used TAA did not benchmark the value-add of this investment approach properly, Wright said.
“You do hear people say I reallocated to cash out of equities, or the credit exposure blew up the defensive parts I’ve allocated to cash, but people never measure whether they actually have added value from TAA,” he said.
“People never go back and say: okay, well if I had of kept the client’s portfolio and rebalanced it in line with my initial intentions for this client and risk profile, how would it have done?
“People never do that, so how do you know that you’re adding value from a TAA perspective? We’d argue that in most cases you don’t.”
