TL;DR
- Tactical asset allocation (TAA) = active, disciplined portfolio adjustments
- Aims for better returns and risk management
- Complements your strategic asset allocation, never replaces it
- Used by Scotia’s Multi-Asset Management Team to help investors stay on track in changing times
In today’s investment landscape, change is the only constant. Markets move for many reasons–economic data, global events, earnings expectations, investor sentiment–and these shifts can make even the most experienced investors uneasy. Our flexible, research-driven approach uses tactical asset allocation to complement strategic asset allocation to help keep your portfolio resilient, adaptive, and positioned for long-term success, no matter what comes next.
What is tactical asset allocation?
Tactical asset allocation (TAA) is a way to make small, temporary, short-term adjustments to a portfolio’s mix of stocks, bonds, and other assets, helping investors capitalize on market shifts and protect against risk, while staying grounded with a well-diversified, long-term, strategic asset allocation. Think of your strategic asset allocation as your car’s route on a road trip, with tactical allocation like adjusting your steering and speed to stay in the best flow of traffic and avoid hazards along the way.
Why use TAA?
Enhanced returns
TAA aims to boost returns by taking advantage of short-term mispricings or market trends–without chasing fads.
Risk management
During volatile times, TAA can reduce exposure to riskier assets, helping cushion downside losses.
Flexibility and discipline
Instead of reacting emotionally, TAA brings a proactive, rule-based approach to managing market changes.
Here's how TAA works in your portfolio
Unlike a fixed “set it and forget it” strategy, tactical asset allocation allows the Multi-Asset Management Team, portfolio managers for Scotia Portfolio Solutions, to make temporary adjustments to your portfolio’s asset mix, based on an outlook of 6 to 18 months, as new investment opportunities arise. For instance, strong evidence of improving stock performance may prompt a targeted increase in equity exposure. These shifts rely on disciplined analysis, not a gut feeling, and use several straightforward approaches. Sometimes the focus is on determining whether equities or fixed income are forecasted to outperform. Other times, the team seeks out undervalued opportunities or reduces positions in overpriced areas. Major economic shifts, such as changes in interest rates or inflation, can also drive these decisions. The goal is to help portfolios quickly adapt to a changing market landscape.
Example: If recession risks rise, the team might adjust a typical 60% equities and 40% bonds mix to 58% equities and 42% bonds for added caution, returning to normal when conditions improve. Each adjustment is designed to be modest and purposeful, keeping portfolios resilient and responsive.
So, what role does strategic asset allocation play?
When building a portfolio, investors need both a steady long-term plan and flexibility to adjust when markets shift. Strategic and tactical asset allocation work together, balancing future goals with the realities of changing conditions. Here’s how each plays an important role in your investment journey.
| Strategic asset allocation | Tactical asset allocation | |
|---|---|---|
| Approach | Long term, set target mix | Flexible, short-term adjustments |
| Rebalancing | Periodic (e.g. annually, maintains set weights) | Active tweaks as conditions change |
| Goal | Foundation for meeting big goals | Overlay to capture timely opportunities |
| Example | Always 60/40 stocks/bonds | 60/40 base, sometimes 58/42 in downturns |
At the end of the day, TAA is not about dramatic bets or perfect timing. Success comes from steady, data-driven adjustments, not guesswork – all leading to incremental gains, smoother returns, and less stress in bumpy markets. At Scotia Global Asset Management, TAA is woven into our multi-asset portfolio solutions including Scotia Essentials, Selected, Innova, and Partners. Our team of experts continuously monitor markets, adjusting your portfolio to keep it resilient, opportunity-ready, and anchored to your goals.
“As portfolio managers, we are not trying to outguess every market move; we are using tactical asset allocation to make modest, evidence-based tilts that help keep clients’ portfolios resilient, on course, and aligned with their long-term goals.”
This document has been prepared by Scotia Global Asset Management and is provided for information purposes only. Views expressed regarding a particular investment, economy, industry or market sector should not be considered an indication of trading intent of any of the mutual funds managed by Scotia Global Asset Management. These views are not to be relied upon as investment advice nor should they be considered a recommendation to buy or sell. These views are subject to change at any time based upon markets and other conditions, and we disclaim any responsibility to update such views.
Information contained in this document, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and Scotia Global Asset Management is not responsible to update this information. To the extent this document contains information or data obtained from third-party sources, it is believed to be accurate and reliable as of the date of publication, but Scotia Global Asset Management does not guarantee its accuracy or reliability. Nothing in this document is or should be relied upon as a promise or representation as to the future. Investors should consult their own professional advisor for specific investment and/or tax advice tailored to their needs when planning to implement an investment strategy to ensure that individual circumstances are considered properly and action is taken based on the latest available information.
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