Tactical investment management strategy refers to making active changes to a portfolio to take advantage of market opportunities. Some best practices example companies utilize include proper diversification across asset classes and regular rebalancing. By diversifying, investors can reduce portfolio volatility and take advantage of asset classes that zig when others zag. Rebalancing brings portfolios back to target allocations, ensuring investors lock in gains and adhere to risk tolerances. Top performers also focus extensively on monitoring and quickly adapting strategies to changing market conditions. These companies build flexible, customized portfolios tailored to client goals.
Diversification reduces risks and enhances returns
Leading tactical investment managers diversify client portfolios broadly across equities, fixed income, commodities, currencies, and other alternative assets. By holding non-correlated assets, overall portfolio risk declines substantially without sacrificing returns. When some holdings decline, others may increase or hold steady to smooth volatility over long time horizons. These firms revisit asset allocation periodically and rebalance to maintain desired risk exposures.
Rebalancing provides discipline and risk control
Top tactical managers also rebalance on a regular basis by trimming asset classes that have outperformed and adding to those that have lagged. This buy low/sell high discipline ensures portfolios do not drift too far from target allocations over time. Rebalancing also enables investors to adhere to predetermined risk tolerances, locking in gains from appreciated assets and limiting overexposure. Leading firms carry this out methodically based on market conditions using thresholds, time intervals, or both.
Customization aligns strategies with client goals
Finally, premier tactical managers customize investment approaches for each investor. This includes detailed conversations to understand time horizons, income needs, tax considerations, and risk appetites. Portfolios are then constructed using in-house proprietary strategies tailored to these unique objectives. An open dialogue enables advisers to adapt allocations over time to match changing client circumstances or market developments.
In summary, best-in-class tactical investment management companies utilize diversification, rebalancing, and customization strategies aligned closely with client goals and risk tolerances, enabling superior risk-adjusted returns over the long term.