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Tactical Asset Allocation Strategies
Studies conclude that as much as 90% of investment return comes from asset allocation.
At Monroe Vos we will suggest tactical asset allocation moves when appropriate and, when we are convinced we are right due to analysis of the data and our experience, to supplement strategic asset allocation. Since 2000 we have been proactive to our clients' benefit.
Here are some examples:
- In the Spring of 2000, we suggested that our clients reduce equity exposure from 60%-80% to 30%-40%. We did this because the S&P 500 was selling at a 42X PE on a rolling ten year average. It had never been this high and the indexes weredominated by tech stocks, many of which had never made a profit.
- In 2004, we recommended that our clients initiate an allocation in alternative investments such as real estate, emerging market debt, managed commodities, and energy.
- In early 2006, as the Fed raised interest rates, we suggested that our clients move to money market from fixed income to avoid losing principal as interest rates rose. We protected assets during this period.
- In late 2007, we suggested going back into intermediate bonds as the Fed started to lower interest rates.
- In July 2008, we suggested that our clients have no more than 40% exposure to the stock market with 60% in domestic fixed income.
- In late September/early October 2008, we suggested that our clients reduce equity exposure to between 20-30% depending on their risk tolerance. It became apparent that the financial system was in jeopardy and the global economy was slowing due to subprime mortgages and derivatives supported by real estate.
- In early July 2009, we suggested that our clients reduce energy exposure to 5% and rebalance their portfolios to 20% equity and 80% fixed income.
- In August 2009, we recommended that our clients exit their investment in energy but continue to have 20% in diversified equity investments.
- In January 2010, we recommended our clients adopt a neutral position of 40% equity and 60% fixed income.
Tactical Asset Allocation is reflected in the following table which shows these moves resulted in positive excess
Quarterly Model Portfolio Updates
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