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ETF Specialist

Do Tactical-Allocation Funds Deliver?

These funds haven't met performance expectations and are difficult to use in a broader portfolio.

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A version of this article was published in the February 2019 issue of Morningstar ETFInvestor. Download a complimentary copy of Morningstar ETFInvestor by visiting the website.

Tactical-allocation funds aim to deliver better absolute or risk-adjusted returns than static allocation funds by deftly switching exposure among asset classes. Portfolio managers may evaluate the attractiveness of an asset class using signals such as relative valuations, price trends, economic indicators, sentiment analysis, or a combination of these metrics. Although this may seem like a fruitful area for active management, tactical allocation is hard, and most that try have failed. Sticking to a long-term strategic allocation is probably the most prudent course for most investors.

Adam McCullough has a position in the following securities mentioned above: VTI. Find out about Morningstar’s editorial policies.