RT Journal Article
SR Electronic
T1 Is Tactical Allocation a Winning Strategy?
JF The Journal of Index Investing
FD Institutional Investor Journals
SP jii.2021.1.105
DO 10.3905/jii.2021.1.105
A1 Srinidhi Kanuri
A1 James Malm
A1 D. K. Malhlotra
YR 2021
UL https://pm-research.com/content/early/2021/06/25/jii.2021.1.105.abstract
AB In this study, we evaluated the absolute and risk-adjusted performance of tactical allocation mutual funds and benchmarked them to various benchmark indexes from January 1994 to October 2016. We found that tactical allocation mutual funds underperformed all benchmark indexes and had lower absolute and risk-adjusted performance during the period. Tactical allocation funds, however, had lower risk or standard deviation of returns compared to all asset categories with the exception of bonds. We also computed seven-factor alpha and found that tactical allocation funds had significantly negative alpha during the entire period, including during the 2008 financial crisis. Our findings indicate that tactical allocation funds did not outperform the benchmarks, and investors would have been better off with passively managed funds that followed benchmark indexes.TOPICS: Mutual funds/passive investing/indexing, performance measurement, risk management, financial crises and financial market historyKey Findings▪ Tactical allocation mutual funds underperformed all benchmark indexes and had lower absolute and risk-adjusted performance from January 1994 to October 2016. Investors would have been better off with passively managed funds that followed benchmark indexes.▪ For most investors, sticking to a long-term strategic allocation is the best course of action.▪ Although we found that tactical allocation funds do not deliver superior performance on a risk-adjusted basis, our results should be interpreted with caution. We did not examine variation in asset class sensitivity among funds, and whether this might be related to alpha generation.