Another tell-tale sign is repeated dramatic changes in asset allocation during short time periods. So how can you tell if the fund you own employs a tactical approach? One obvious way is by reading the fund's prospectus to see if it mentions the fund's flexibility to shift assets around opportunistically. There are managers who wouldn't dream of trying to time the market-which tactical investing is often likened to-while others see it as an essential part of their overall approach. Of course, some fund managers tactically reallocate assets more than others. One that makes such a shift with the intention of sticking with the new allocation for many years could be said to be making a strategic one. A manager who opportunistically adjusts his fund's allocation based on what is likely a temporary change in the market is making a tactical move. An allocation fund manager, worried that a bear market is approaching, shifts a large chunk of assets from the equity side of the portfolio to the fixed-income side.Īlthough there's no official line of demarcation between strategic and tactical investing, the distinction between acting with a near-term and long-term mind-set is as good a guideline as any.A bond fund manager who thinks bonds from a given country are temporarily underpriced reallocates assets in that direction.A stock fund manager who believes that more speculative stocks may be falling out of favor rapidly shifts a substantial portion of his portfolio to more blue-chip names.Here are a few examples of moves that could be considered tactical: Such moves may be based on what the manager thinks is happening or will happen in the markets and typically are aimed at boosting gains, avoiding losses, or both. (The fund's name also may provide a clue, though one shouldn't rely on the name alone.)Īs part of their strategies, some funds look for opportunities to improve performance by changing their investment mix more frequently than others, taking a so-called tactical approach. In fact, a fund's placement in a given Morningstar fund category often provides a good clue as to what a fund's strategy is. Or a bond fund that invests primarily in securities that pay above-average yields may be said to use a high-yield strategy. For example, a mutual fund that routinely invests in stocks its managers believe are underpriced may be said to employ a value strategy. How does this distinction apply to investing? An investment strategy generally refers to a consistently executed long-term plan.
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