A recent Morningstar report looked at fund managers that implement market timing strategies also known as Tactical Strategies. The report examined the results of two types of funds, each holding a mix of stocks and bonds[1]:

  • Balanced: Minimal change in allocation to stocks
  • Tactical Asset Allocation: Periodic shifts in allocation to stocks

As a group, tactical funds that sought to enhance results by shifting assets between stocks and fixed income underperformed funds that simply held a relatively static mix. Morningstar also pointed out that if the performance of non-surviving tactical funds were included, the numbers would be even worse. The conclusion: “The failure of tactical asset allocation funds suggests investors should not only stay away from funds that follow tactical strategies, but they should also avoid making short-term shifts between asset classes in their own portfolios.”[2]

These results are not surprising, as successful timing requires two correct decisions: when to pare back the allocation to stocks and when to increase it again. A tactical strategy is generally attempted by retail investors after reading an article or watching a financial show that informs the viewer of an impending doom. At times, this noise can be deafening and it’s hard to stay the course when negative information is being fed directly into our homes.  The best thing to do when this happens is to remember the long-term plan and stick with it, as shifting away from the original strategy could cost you.

Below you will find a short video about the noise that we all experience throughout our lives. Enjoy!


[1] Source Morningstar. Morningstar defines Tactical Allocation portfolios as those that “seek to provide capital appreciation and income by actively shifting allocations across investments. These portfolios have material shifts across equity regions and bond sectors on a frequent basis. To qualify for the tactical allocation category, the fund must have minimum exposures of 10% in bonds and 20% in equity. Next, the fund must historically demonstrate material shifts in sector or regional allocations either through a gradual shift over three years or through a series of material shifts on a quarterly basis. Within a three-year period, typically the average quarterly changes between equity regions and bond sectors exceeds 15% or the difference between the maximum and minimum exposure to a single equity region or bond sector exceeds 50%.”

[2] https://www.morningstar.com/articles/1058700/tactical-asset-allocation-dont-try-this-at-home