Setting objectives for your asset allocation

The objective of this paper is to describe how an investor can define a target return, split between that of Strategic Asset Allocation (SAA) and excess return derived from active portfolio management. The balance between these two major sources of return clearly depends on the investor’s definition of what is relevant to Strategic Allocation and to active management. Our observation here is that the impact of SAA rebalancing and structural tilting towards certain assets and factors are generally included within strategic return, whereas active management encompasses the contributions of Tactical Asset Allocation (TAA) and of manager or security selection.

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