Insights

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Strategic vs. tactical asset allocation
- a performance analysis

The tremendous growth in tactical funds in recent years does not seem to be justified in higher performance.

 November 2018   |    Share this article

Kristian Runge Weeke
Head of RFP and Client Intelligence
krw@sparinvest.dk
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Jacob Nordby Christensen
Chief Sales Officer
jnc@sparinvest.dk
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Speed read

  • The number of tactical allocation funds in Europe, as well as their total AuM, has increased sharply in recent years
  • While these funds might be more diverse in asset range, and more dynamic in allocation, the current average exposure and risk rating resembles that of an average ‘moderate’ allocation strategic fund
  • The costs of tactical funds are, on average, significantly higher than for strategic funds
  • The historical long-term performance (risk/return profile) of the analyzed tactical funds has, on average, been poorer than the corresponding strategic funds
  • The difference in performance is smaller for the best-performing funds and bigger for the worst-performing funds – implying that it is more important to pick the right manager for tactical funds than for strategic funds

Based on Morningstar Direct data, we have examined the asset flows and growth rates of European based allocation funds. We find that while strategic and tactical allocation funds grew AuM at a broadly similar rate between 2007 and 2012, tactical funds have subsequently taken off. We analyze whether the high net inflow – probably rooted in investor expectations of higher returns from the tactical approach – is actually justified by higher performance from these funds.

Our performance analysis of 5,556 allocation funds shows that historical performance (risk/return profile) of tactical funds, measured over longer time periods has, on average, been inferior to strategic funds. Thus, we find that the tremendous growth in tactical funds in recent years does not seem to be justified by higher performance.

Strategic vs. tactical asset allocation - a performance analysis  

Please note that this report is one of three insight papers on strategic and tactical allocation funds.
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Please note that this report is one of three insight papers on strategic and tactical allocation funds. If you would like to receive the other two papers by email please sign up here.

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