Risk-Based Tactical Asset Allocation Strategies to
Enhance the Performance of Balanced and Lifecycle
Funds: Some International Evidence

Abstract

The fund management industry provides numerous financial products to help investors accumulate wealth in preparation for their retirement. Typically, such financial products as balanced funds and lifecycle funds have been the most popular. Recently, because of the two major bear markets from 2000 to 2009, considerable interest has been shown in developing investment strategies that focus on risk rather than returns. In this article, the author proposes a glide path value-at-risk (VaR) approach that takes into account the time variation of risk and return. He shows that the glidepath VaR approach outperforms the terminal value of a 60/40 balanced fund by up to 35%. Furthermore, he proposes that lifecycle funds should not be “age based” but should be “risk based.”

TOPICS: Retirement, VAR and use of alternative risk measures of trading risk