Systematic Tactical Asset Allocation with Dual Momentum
Summary
This introduction describes tactical asset allocation as a long-horizon portfolio approach that adjusts broad asset-class exposures at relatively infrequent intervals. It contrasts the approach with fixed buy-and-hold allocations and short-term trading, and discusses its appeal for investors seeking codified rules, liquid exchange-traded instruments, and lower trading frequency. The article also flags forecasting uncertainty, sensitivity to rebalance timing, equity beta, concentration, and turnover as important limitations.
Its example is a monthly Dual Momentum rule: compare trailing one-year returns across domestic equities, international equities, and short-term Treasury bills, then allocate entirely to the strongest eligible equity exposure or to bills when the absolute-momentum test fails. The text describes historical concentration in stocks and a 100% allocation to one asset class at a time, but supplies no detailed performance series or independent validation. The strategy is presented as an accessible illustration, not as a diversified or universally suitable portfolio recommendation.
Key ideas
- Tactical asset allocation adjusts broad asset-class weights on a relatively infrequent schedule.
- Dual Momentum combines relative comparisons across assets with an absolute return filter.
- The example selects domestic or international equities when their trailing returns pass the bill benchmark, otherwise it holds bills.
- Infrequent rebalancing can reduce trading activity, though dynamic switches may still create substantial turnover.
- Concentration, rebalance-date sensitivity, forecasting assumptions, and equity exposure are key risks.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.