Even as more active forms of asset allocation become more available as options for portfolio management, there remains a lack of consensus among investment advisors over the differences among them. I recently sat down with Brian D. Singer, CFA, CEO and Chief Investment Officer of Singer Partners, to learn the reasons for his firm's focus on tactical asset allocation as a core investment strategy.
Below is Part 1 of our exchange, in which we attempt to define tactical asset allocation, compare it to other asset allocation methods and learn how advisors can implement it successfully.
Mike Henkel: From your perspective, what differentiates tactical asset allocation from other asset allocation methods?
Brian Singer: I would say that strategic is passive with long-term (10- to 20-year time horizon); dynamic is active with a medium-term horizon (two- to 10-year horizon), and tactical is active with a short-term horizon (daily to two-year horizon). I should also note that these allocation methods aren't mutually exclusive—you can start with a strategic allocation portfolio and incorporate dynamic or tactical strategies within it.
The phrase "fundamental values" is introduced without perspective. Perhaps we could state that it represents an asset's value as a cash-flow producing security and that value does not change much over time, consistent with longer-horizon investing.
Henkel: How does Singer Partners' Edge Portfolio differ from your other investment strategies?
Singer: It comes down to objectives and constraints. At Singer, we believe market prices are more volatile than the fundamental value of the underlying assets, and these discrepancies create potential investment opportunities. The Edge Portfolio [available on the Envestnet platform] follows our overarching conceptual approach, but it uses only ETFs and is also a total return portfolio. It is less constrained in its tactics, using long, inverse and leveraged ETFs in order to manage risk. In contrast, we have other portfolios built around a specific risk level that seek relative return to the underlying benchmark. This means we position those portfolios in an effort to achieve return in excess of the benchmark's returns without exceeding benchmark risk levels.
