Tactical asset allocation adding little value: Zenith
Zenith Investment Partners believes many advisers practice tactical asset allocation (TAA) in the management of their clients' portfolios despite evidence to suggest that little value is added.
Many advisers wrongly assume that TAA is part of their service and value-add to clients, according to Zenith’s David Wright.
However, very few practitioners consistently add value from TAA over the longer term, many actually detract value by making asset allocation adjustments away from strategic asset allocation weights over the longer term, a Zenith statement said.
The demand for TAA services from financial advisers and their clients has increased given the negative returns investors have experienced over the past 18 months, Wright said.
“In severe bear market conditions like these were the investment experience is very painful for investors; there is immense pressure on advisers to ‘do something’. As a result, there has been a lot of allocations made from underperforming asset classes into cash, which for those who aren’t aware is a TAA decision,” Wright said.
According to Zenith, a lot of this type of portfolio advice and activity is taking place, however, it says there are a number of problems with this approach.
Most people wait for signs of recovery or rebound in the investment markets before investing back in the market, but waiting for signs of recovery will usually result in missing out on significant returns that have already occurred in the share market.
An investor needs to be invested in the early part of the market so as not to miss out on the rebound, the Zenith statement said.
Recommended for you
Perpetual has appointed a new CEO for affiliate J O Hambro Capital Management, as it tries to stem outflows and refresh the brand.
Outflows of US$1.4 billion from its US equity funds have contributed to GQG Partners reporting its highest monthly outflows for 2025 in August.
Domestic equity managers are lagging the ASX 200 in the first half of the year, according to S&P, with almost three-quarters of Australian equity funds underperforming over the six-month period.
ETFs saw almost $5 billion of inflows during August, with international equities gaining double those of fixed income funds, as total assets close in on $300 billion.
