Definition
TAA temporarily adjusts portfolio weights away from strategic targets based on short-term market views. For example, overweighting equities during perceived undervaluation or moving to cash ahead of expected volatility. TAA operates within bands (e.g., ±5-10% of strategic weights). Successful TAA requires accurate market timing, which is notoriously difficult.
lightbulb Example
Strategic allocation is 60/40. Market valuations appear stretched, so TAA reduces equities to 52% and increases bonds to 43% and cash to 5%. If markets correct 15%, the portfolio loses ~7.8% versus ~9% at strategic weights.
verified_user Key Points
- Short-term adjustments around strategic targets
- Requires market timing ability
- Operates within predefined bands
- Most TAA adds minimal value after costs