Global Tactical Asset Allocation Strategies Gain Steam, Segal Rogerscasey Says

(June 18, 2012) — Global tactical asset allocation (GTAA) strategies have gained steam as extraordinary low interest rates offered on bonds increase the need for investors to find a stable return substitute for fixed-income, a report by Segal Rogerscasey concludes.

GTAA strategies provide a source of asset diversification and downside protection, the consulting firm says.

“GTAA investing evolved from tactical asset allocation (TAA), which emerged in the 1970s to offer a solution to investors wanting tactical exposures to multiple asset classes, typically shifting between US stocks, bonds, and cash,” Segal Rogerscasey states in a paper published this month. “As global markets matured, TAA managers began adding country allocation decisions within and across asset classes, in addition to traditional asset class timing, thereby creating a global TAA investment approach, or GTAA.”

Segal Rogerscasey’s paper continues to note that today, GTAA broadly refers to managers that take long-term or short-term views on market trends by investing tactically across equities, fixed income, commodities, currencies and real estate. The consulting firm outlines the following main GTAA investment styles:

1) Directional strategies: Directional GTAA managers express views on a particular market or markets, often resulting in a tilt toward one or more asset classes, such as equities, fixed income, commodities or real estate.

2) Blend strategies: Balanced GTAA managers focus on a traditional blended portfolio across equities and fixed-income investments, with lower allocations to other asset classes such as real estate.

3) Completion strategies: Completion GTAA managers provide exposure to assets not found in a traditional 60/40 portfolio, such as emerging markets debt or Treasury inflation-protected securities (TIPS).

“GTAA managers can be differentiated by the instruments they use to implement their strategies,” Segal Rogerscasey concludes, outlining fund-of-funds, exchange traded funds (ETFs), and derivative instruments as potential approaches.

The report continues: “In examining performance, GTAA strategies appear to serve as a good complement to these less than perfectly liquid strategies, therefore allocating to both GTAA and alternative strategies could be beneficial for long-term performance.”