Thinking Outside The Street Episode 6 – Investing With Style

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In This Episode:  Paul rambles through trying to identify investing styles using a clever matrix (see below) as a starting point to understanding the important differences in how to manage a portfolio.

  • Strategic Investing has meant to develop an allocation model and then to find asset class representation that closely adheres to a benchmark for that asset class. Typically the portfolio is rebalanced periodically to keep the allocations close to the allocation model.
  • Tactical Investing has meant to adjust the asset allocation model based on certain rules or market conditions.
  • These two approaches can be used together with an allocation model that then looks for asset class representation with funds that use active styles to reduce risk or get better returns.
  • OR, a tactical allocation approach can be used with those actively managed funds. This creates a hybrid approach to portfolio management.
  • Using some tactical models, it is possible to change allocations to various asset classes very often.
  • This is important to understand because the style used to manage a portfolio reflects the underlying investment philosophy of the manager (even if that manager is the account owner who is managing his own account).

Our thanks to Michael Kitces of “Nerd’s Eye View” and Kitces.com for permission to use the graphic below. His full article can be found at http://www.kitces.com/blog/active-passive-strategic-tactical-whats-your-investment-management-style/ and is well worth the read.

Active-Passive-Strategic-Tactical-Investment-Manager-Styles-e1396461695117

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