Tactical Asset Allocation Alpha and The Greatest Trick the Devil Ever Pulled
In Tactical Alpha onThe investment industry has investors convinced that the only path to better performance is through stock selection. As a result,…
0We Published Our First Book! Adaptive Asset Allocation: Dynamic Global Portfolios to Profit in Good Times – and Bad
In Adaptive Asset Allocation, Asset Allocation, Behavioural Finance, Factors, Industry Illusions, Institutional, Minimum Variance, Optimization, Permanent Portfolio, Retail, Retirement, Risk Parity, Systematic Investing, Tactical Alpha, Valuation Based Equity Market Forecasts onWe are happy to announce that our book, Adaptive Asset Allocation: Dynamic Global Portfolios to Profit in Good Times -…
Missing the forest for the trees: Asset allocation over security selection.
By far the greatest source of personal consternation as a professional in markets is investors’ obsession with finding the best…
Tactical Alpha in Theory and Practice (Part II): Principal Component Analysis
In Part I of this series, we explored Grinold’s Fundamental Law of Active Management, and why the theory leads to misguided…
Apples and Oranges: A Random Portfolio Case Study
This article was motivated by a provocative discussion with a thoughtful RIA. Let’s call him Harry. Harry expressed some disappointment…
Forget active vs. passive. It’s all about factors.
In Behavioural Finance, Correlation, Diversification, Factors, Miscellaneous, Risk Parity, Tactical Alpha, Value onWe just love a good debate, and there seems to be quite a heated debate at the moment about the…
Setting Expectations for Monthly Trading Systems
In Adaptive Asset Allocation, Asset Allocation, Diversification, Miscellaneous, Systematic Investing, Tactical Alpha onSystematic researchers overwhelmingly use monthly holding periods to test strategies. This is probably driven by the availability of long-term monthly total…
Tactical Alpha
irst, note that we will soon be going to press with a new paper, entitled “Tactical Alpha: A Quantitative Case for Active Asset Allocation”. Here is the abstract for the paper:
Grinold linked investment alpha and Information Ratio to the breadth of independent active bets in an investment universe with his Fundamental Law of Active Management. Breadth is often misinterpreted as the number of eligible securities in a manager’s investment universe, but this ignores the impact of correlation. When correlation is considered, a small universe of uncorrelated assets may explain more than half the breadth of a large stock universe. Given low historical correlations between global asset classes in comparison with individual securities in a market, we make the case that investors may be well served by increasing allocations to Tactical Alpha strategies in pursuit of higher Information Ratios. This hypothesis is validated by a novel theoretical analysis, and bolstered by two empirical examples applied to a global asset class universe and U.S. stock portfolios.
UPDATE: THE PAPER IS PUBLISHED! We would encourage those who are interested in global allocation strategies to give our new Tactical Alpha paper a read. We’ve yet to distribute this widely. We believe it provides a strong argument for investors to consider a larger allocation to active asset allocation strategies in general. You’ll be granted immediate access to a pre-release copy here.