Understanding Global Tactical Asset Allocation and Its Benefits

Global tactical asset allocation is a flexible investment strategy that allows you to adjust your portfolio's asset mix in response to changing market conditions. This approach involves actively managing your investments to take advantage of opportunities and mitigate risks.

By diversifying your portfolio across different asset classes, such as stocks, bonds, and commodities, you can reduce your overall risk and increase potential returns. A study found that a globally diversified portfolio can help reduce risk by up to 50%.

Investing in a globally diversified portfolio can provide a more stable source of returns, especially in times of market volatility. This is because different asset classes tend to perform well in different market conditions, allowing you to spread your risk and increase your potential for long-term growth.

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Tactical asset allocation is a portfolio strategy that shifts the percentage of assets held in various categories to take advantage of market pricing anomalies or strong market sectors. This strategy allows portfolio managers to create extra value by taking advantage of certain situations in the marketplace.

A portfolio manager creates an investor policy statement (IPS) to set the strategic mix of assets for inclusion in the client's holdings. The manager will look at many factors such as the required rate of return, acceptable risk levels, legal and liquidity requirements, taxes, time horizon, and unique investor circumstances.

The percentage of weighting that each asset class has over the long term is known as the strategic asset allocation. This allocation is the mix of assets and weights that help an investor reach their specific goals.

Here's a simple example of a typical portfolio allocation and the weight of each asset class:

• Cash = 10%

• Bonds = 35%

• Stocks = 45%

• Commodities = 10%

The Global Tactical Allocation Model (GTAM) strategy is a total portfolio solution designed to tactically navigate the best combinations of valuation and growth trends, while providing a well-diversified portfolio with less exposure to market risk.

The GTAM Investment Committee constructs client portfolios using a hybrid approach of a top-down macro view that emphasizes business cycle dynamics, coupled with fundamental and qualitative insights from decades of managed money experience.

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Tactical asset allocation is a powerful tool for investors, allowing them to adjust their long-term target weights for a short period to capitalize on market or economic opportunities.

By adjusting the strategic asset allocation, investors can take advantage of changes in the market, such as a substantial increase in demand for commodities. For example, an investor may shift more capital into commodities to take advantage of the opportunity, resulting in a tactical allocation of 15% for commodities.

Tactical shifts can also come within an asset class, such as shifting the allocation within stocks from 30% large-cap and 15% small-cap to 40% large-cap and 5% small-cap if the outlook for small-cap stocks doesn't look favorable.

Tactical shifts usually range from 5% to 10%, though they may be lower. It's unusual to adjust any asset class by more than 10% tactically, as this would indicate a fundamental problem with the construction of the strategic asset allocation.

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In practice, tactical asset allocation is different from rebalancing a portfolio. Rebalancing involves bringing the portfolio back to its desired strategic asset allocation, whereas tactical asset allocation adjusts the strategic allocation for a short time to capitalize on short-term opportunities.

Here's an example of a tactical allocation:

This allocation is a temporary adjustment from the strategic allocation, and the investor plans to revert to the strategic allocation once the short-term opportunities disappear.

Global tactical asset allocation involves taking an active stance on the strategic asset allocation itself and adjusting long-term target weights for a short period to capitalize on the market or economic opportunities.

Tactical shifts may be made within an asset class, allowing investors to adapt to changing market conditions. This approach can help investors stay ahead of the curve and make the most of market fluctuations.

The Global Multi-Asset team applies a global macro and thematic approach to multi-asset investing, focusing on major macroeconomic shifts and structural transformations that may give rise to asymmetric risk/reward opportunities. This approach helps investors identify attractive risk/reward opportunities based on three primary criteria: valuation, fundamental dynamics, and sentiment.

Here are the key strategies used by the Global Multi-Asset team:

Modern portfolio theory (MPT) is a framework for constructing portfolios that aim to maximize returns for a given level of risk. It's based on the idea that investors can achieve higher returns and lower risk by diversifying their portfolios across all asset classes.

MPT is a relatively long-term buy-and-hold investment approach that focuses on identifying a mix of assets expected to provide the highest potential returns for the level of risk acceptable to the investor. This approach is prone to huge drawdowns.

The MPT approach is the most common one used by Certified Financial Planners (CFPs), robo-advisors, and is widely promoted in mass-market investing.

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Tactical asset allocation is a key strategy that involves adjusting long-term target weights for a short period to capitalize on market or economic opportunities. This approach can be used to take an active stance on the strategic asset allocation itself.

The Global Multi-Asset team uses a thematic approach to multi-asset class investing, focusing on major macroeconomic shifts and structural transformations that may give rise to asymmetric risk/reward opportunities. This approach involves investing around major macro-economic turning points where investors are most likely to mis-price assets amid changing dynamics.

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Modern portfolio theory (MPT) is a framework for constructing portfolios that aim to maximize returns for a given level of risk. It's a relatively long-term buy-and-hold investment approach that focuses on identifying a mix of assets expected to provide the highest potential returns for the level of risk acceptable to the investor.

The DF Global Tactical Equity strategy seeks to achieve strong capital appreciation while using its tactical nature to preserve capital during times of market stress. It primarily invests in equities, with a lesser focus on fixed income and alternatives.

Some key strategies used by the Global Multi-Asset team include:

DF stands for Donoghue Forlines, a company that offers a range of investment products, including the Global Tactical Allocation portfolios.

At the heart of these portfolios is a strategic approach to asset allocation, which involves dividing investments among different asset classes, such as equities, fixed income, and alternatives.

The DF Global Tactical Allocation portfolios take a long-term view, targeting global macroeconomic trends while also analyzing shorter-term economic variables to inform investment decisions.

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Tactical asset allocation is a key component of these portfolios, involving adjustments to the strategic asset allocation in response to market opportunities or economic changes.

Here are some key characteristics of the DF Global Tactical portfolios:

These portfolios offer flexibility and adaptability in response to changing market conditions, with the ability to adjust asset allocation in response to new information.

The Global Multi-Asset team uses a thematic approach to multi-asset class investing, focusing on major macroeconomic shifts and structural transformations that create asymmetric risk/reward opportunities.

They invest around major macro-economic turning points, where investors are most likely to mis-price assets amid changing dynamics. This approach allows them to identify attractive risk/reward opportunities.

The team's investment process involves three primary criteria: valuation, fundamental dynamics, and sentiment. These tools are most powerful when used in combination.

Here are the three primary criteria used by the team:

The Global Multi-Asset team believes that global multi-asset class investing presents opportunities to generate excess return due to structural inefficiencies.

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Investors often focus on security selection, neglecting the potential for excess return from other asset classes. This home-country bias can lead to missed opportunities.

Regions and countries have independent economic drivers, giving rise to uncorrelated investment opportunities.

Investors tend to extrapolate current trends into the future, mistaking cyclical dynamics for structural changes. This can lead to mis-priced assets.

The Global Multi-Asset team invests around major macro-economic turning points, where they think investors are most likely to mis-price assets amid changing dynamics.

A global macro and thematic approach is applied to multi-asset investing, focusing on major macroeconomic shifts and structural transformations.

This approach seeks to identify asymmetric risk/reward opportunities.

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As a seasoned investor, I've had the chance to work with some of the best in the business, and I can tell you that having a strong Chief Investment Officer (CIO) is crucial for success.

John A. Forlines, III is a highly respected CIO, currently leading Donoghue Forlines as its Chief Investment Officer and Portfolio Manager for the Donoghue Forlines Global Tactical Portfolios.

A CIO's role is to make informed investment decisions, and John's experience speaks for itself. He was formerly Chairman and CIO of JAForlines Global, where he led the team to win Envestnet's 2016 Strategist of the Year Award for the management of the Global Tactical Portfolio Suite.

This award is no small feat, and it's a testament to John's expertise and leadership. The Portfolio Team, under his continued leadership, was a finalist for Envestnet's Strategist of the Year again in 2018, making JAForlines the only firm to become a finalist twice.

John's success doesn't stop there. He's also an Executive in Residence in the Department of Economics at Duke University, where he teaches classes in behavioral finance and decision making. This shows his commitment to sharing his knowledge and expertise with the next generation of investors.

As a CIO, John's experience and expertise have been honed over many years, including a long career with J.P. Morgan from 1985-2000, where he held various roles, including Vice President of Structured Products, Co-Head of the U.S. Private Equity Group, and Managing Director in the Securities Business Development Group.

John's impressive background and experience make him a valuable asset to any investment team.

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The DF Global Tactical Equity portfolio is designed to achieve strong capital appreciation while preserving capital during times of market stress. It primarily invests in equities, with a much lesser extent in fixed income and alternatives.

This portfolio takes a long-term secular view, but also makes tactical positioning during the shorter-term business and credit cycles. This approach allows the portfolio to adapt to changing market conditions and make the most of opportunities.

The DF Global Tactical Equity portfolio invests in three asset classes: equities, fixed income, and alternatives. Here's a breakdown of the portfolio's focus:

The portfolio manager, Nick Lobley, has a strong background in multi-asset research and portfolio construction. His experience as a trader, operations assistant, and research team supporter gives him a unique perspective on the markets.