Implementing tactical allocations in portfolios | BetaShares

Implementing tactical allocations in portfolios

BY Peter Harper | 4 August 2015

This post follows up from my other two posts (here and here) on asset allocation. Many investors use aspects of tactical asset allocation to some extent, perhaps without ever even realising it! Have you ever sold down shares and moved to cash because you thought markets were toppy? That’s a form of tactical asset allocation!

Graph 1

Source: Morningstar Direct. Past performance is not an indication of future performance. Illustration only.

The benefits of a tactical approach to creating portfolios can be illustrated by the diagram above, which looks at the performance of portfolios during the GFC. As you will see, during this period, a portfolio of 50% S&P/ASX 200 shares / 25% Global Bonds / 25% Cash (green line), outperformed the performance of a straight S&P/ASX 200 portfolio (blue line). The green “tactical allocation” portfolio outperformed by ~36% in total during the GFC!

Similarly, have you ever bought international equity exposure because you felt that perhaps the US market would outperform the Australian market? That’s a form of tactical asset allocation!

Such a tactic is illustrated below. Here, you can see the outperformance of a 50% S&P/ASX 200/50% S&P 500 Portfolio (yellow line) vs a pure S&P/ASX 200 Portfolio over the 12 months to end December 2013 – a period in which international shares outperformed Australian shares. The blended domestic and international exposure outperformed by ~13% during this period.

Graph 3


Source: Morningstar Direct. Past performance is not an indication of future performance. Illustration only.

Using tactical asset allocation (even just to a small extent) can be a simple way to potentially achieve improved returns, via broadening investment into other asset classes that may fit the current investment landscape.

For those that are not using tactical asset allocation, one way to “get started” is to focus on the decisions you are already making from an asset allocation standpoint and reflecting on whether you think the current level of risk and diversification in your portfolio is acceptable. Of course, any asset allocation decisions should be constantly monitored and evaluated as market conditions change.

To summarise, the above shows the potential ‘value add’ of allocating beyond Australian equities for investors and their advisers. Given the continued product development in the Australian ETF landscape, allocating to international equities, fixed income or even cash is now as easy as buying any share on the ASX.


  1. Lloyd Kingsley  |  August 5, 2015

    Will you be telling us which funds to buy an sell and when to act?

    1. BetaShares  |  August 7, 2015

      We are not licensed to provide this kind of information, so the answer is no.

Leave a Reply