Skip to Content
Fund Spy

Here's a Reality Check for Investors Considering Tactical Funds

Given the number of emails and calls we're getting, we're not alone in wrestling with tactical asset allocation.

Mentioned: , , , , , , , , ,

Funds employing tactical asset allocation can move quickly across asset classes and/or regions, usually with the goal of avoiding losses in down markets, reaping outsize gains in up markets, or some variation on those themes. Many land in Morningstar's world-allocation or multialternatives categories, but funds with a tactical component show up elsewhere, too, such as in target-date funds. There's much debate over what's tactical and what's not. Here we'll assume that funds could be considered tactical if they have 1) declared the flexibility (but not the obligation) to invest across multiple asset classes and 2) demonstrated a willingness to adjust asset-class exposure significantly over relatively short periods of time. But like beauty, what's considered tactical is often in the eye of the beholder.

Do advisors or investors need to add a tactical fund to their portfolios? The short answer is no. The longer answer is that few are likely to stand up to the questions below that advisors and investors should ask themselves when considering purported tactical allocation funds.

Michael Herbst does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.