The TAA (Tactical Asset Allocation) framework implies constructing investment portfolios based on asset classes of underlying instruments and short-term performance forecasting of the corresponding indices. Originated from the traditional asset classes, TAA is often used for hedge FoF construction. However, when applied to alternative investments, it presents a highly misleading concept:
- Fund managers may use multiple strategies, which makes it difficult to categorize
- The whole TAA framework relies on the style-weighted allocation (read index-weighted allocation) that predetermines allocation across individual funds. Since the majority of hedge funds are not correlated with their corresponding indices, the applicability of the TAA becomes questionable.
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Tactical Asset Allocation: why it is inapplicable to hedge funds. Major problems and drawbacks of TAA for hedge funds. Analysis of correlations between individual funds and their indices.
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