Is Tactical Allocation a Winning Strategy?

Document Type

Article

Publication Date

12-1-2021

School

Finance

Abstract

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.

Publication Title

Journal of Index Investing

Volume

12

Issue

2

First Page

47

Last Page

59

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