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"Despite a few isolated success stories, the overwhelming body of evidence suggests that tactical asset allocation is detrimental to investors’ bottom lines. Instead, investors are far better served by funds that maintain more-stable asset mixes, as well as by avoiding the temptation to make shorter-term shifts in their own portfolios." https://www.morningstar.com/funds/why-tactical-allocation-funds-failedagain
High costs have also weighed down results for tactical asset-allocation funds. On average, funds in this category levy annual expense ratios of 1.4% of assets, making them one of the pricier categories
Management fee of 1.4% is not easily to overcome. Alternatives funds are often expensive to own.
It would be helpful if M* compared the relative performance in 2022. I’d really like to see that. Just looking “hit and miss” I’d say tactical allocation funds held up somewhat better, but that's hardly scientific (or representative). If you want a highly regarded ”stable asset mix” fund (silver rated by M*) look at TRRIX. A fine fund longer term. But it lost a bit over 13% in ‘22. For the conservative investor it’s designed for and marketed to (older & retired) that’s a big loss to swallow.
Not a fan of tactical allocation funds. Fees are one reason. Also, I think Warren Buffett is correct that small investors have an advantage over bigger players in being more nimble - able to change positioning more easily. So, if you want tactical allocation, do it yourself and save the fee.
I don’t mind paying high fees for a specialized product that fills a particular portfolio need. I’m married to a conservative L/S fund. Pricy, but it allows me to have money exposed to markets that would otherwise be sitting in cash.
I'm not a fan of tactical allocation funds either. A fund that adjusts its asset allocation based on varying market conditions sounds great in theory. However, many tactical allocation funds fail to deliver good long-term performance on an absolute or risk-adjusted basis. Coincidentally, fees are also high as was previously mentioned.
The first graph in the article compares annual returns for the Tactical Allocation and Moderate Allocation categories with a 60/40 portfolio from 2020 - 2024. Is this the data you were seeking?
@Observant1 - Thank you. Yes it is. Too late last night when I first looked. I’m surprised tactical allocation lost more than 15% in ‘22. LCORX lost about half as much.
Tactical allocation funds have quite varied approaches and their performances are all over the map. A few examples, in case this is what you were looking for, illustrate this.
I'm not including funds that M* classified as something other than tactical allocation in 2022 (e.g. moderate allocation, market neutral, etc.). Even the styles of many of these funds are volatile.
QSTFX - worst of the worst in 2022, 100th percentile, -45.16% return
DWTNX - a top performer in 2022, 2nd percentile, 2.59% return, but 97th percentile in 2023
These two give you the range of tactical allocation returns in 2022.
CRDBX - 21st percentile in 2022, -8.54% return. All other full calendar year returns were in top quintile. Very high Sharpe ratio (relative). This fund does not invest in fixed income (per prospectus).
LCORX - 13th percentile in 2022, -6.79%. A popular 4* fund here, included for reference.
In a year when almost everything is down, funds that made money or lost a pittance are likely to have lucked out, or be extremely erratic or the opposite, extremely conservative (as I recall only Treasuries did well in 2008).
The average return of a category of funds in any of the past ten years can be found on the M* performance page of a sample fund in that category. Precise to the basis point.
The average return of a category of funds in any of the past ten years can be found on the M* performance page of a sample fund in that category. Precise to the basis point.
Thanks for the reminder. That category average is “hidden in plain sight”. Hard to miss. I don’t typically compare any fund to category - much as I use M*. Every fund is unique.
Am I missing something? REMIX/BLNDX knocks the socks off LCORX, and the other competitors mentioned by several members in this thread.
Good point. LCORX is the only TA fund I ever owned or know much about. That’s why I happened to look at its ‘22 performance. There’s been a lot of discussion of LCORX on the board, perhaps prompted by the Professor’s highlighting the firm’s history and reputation in an Observer commentary a year or two ago. Have heard good things about BLNDX but never took a closer look. And thanks @BenWP for noting.
Am I missing something? REMIX/BLNDX knocks the socks off LCORX, and the other competitors mentioned by several members in this thread.
REMIX / BLNDX is not a direct competitor of other funds mentioned. It and the others are not only in different categories, but as M* views them in different asset classes - alternative and allocation respectively. (The latter is why I highlighted CRBDX, as it eschews fixed income, atypical for an allocation fund.) Lipper concurs: REMIX / BLNDX is in "Alternatives", while LCORX is in "Mixed Assets".
This M* piece may help to see the fine distinctions among the various alternative fund categories and more broadly the difference between alternative funds and allocation (tactical or otherwise) funds. The section entitled "What Are Alternatives?" is a good starting point. There is another paragraph that explains why DRRIX is classified as tactical allocation rather than multistrategy or macro trading (REMIX has drifted between those two). This explanation is helpful in the context of this thread.
Thanks @msf. If REMIX wanders from one ill-defined category to another in a world of « fine distinctions » I won’t fret. I ought to have mentioned that I don’t have a dog in this fight these days, although I did own REMIX/BLNDX in 2022.
Comments
Not a fan of tactical allocation funds. Fees are one reason. Also, I think Warren Buffett is correct that small investors have an advantage over bigger players in being more nimble - able to change positioning more easily. So, if you want tactical allocation, do it yourself and save the fee.
I don’t mind paying high fees for a specialized product that fills a particular portfolio need. I’m married to a conservative L/S fund. Pricy, but it allows me to have money exposed to markets that would otherwise be sitting in cash.
A fund that adjusts its asset allocation based on varying market conditions sounds great in theory.
However, many tactical allocation funds fail to deliver good long-term performance
on an absolute or risk-adjusted basis.
Coincidentally, fees are also high as was previously mentioned.
@hank,
The first graph in the article compares annual returns for the Tactical Allocation
and Moderate Allocation categories with a 60/40 portfolio from 2020 - 2024.
Is this the data you were seeking?
I'm not including funds that M* classified as something other than tactical allocation in 2022 (e.g. moderate allocation, market neutral, etc.). Even the styles of many of these funds are volatile.
QSTFX - worst of the worst in 2022, 100th percentile, -45.16% return
DWTNX - a top performer in 2022, 2nd percentile, 2.59% return, but 97th percentile in 2023
These two give you the range of tactical allocation returns in 2022.
CRDBX - 21st percentile in 2022, -8.54% return. All other full calendar year returns were in top quintile. Very high Sharpe ratio (relative). This fund does not invest in fixed income (per prospectus).
LCORX - 13th percentile in 2022, -6.79%. A popular 4* fund here, included for reference.
In a year when almost everything is down, funds that made money or lost a pittance are likely to have lucked out, or be extremely erratic or the opposite, extremely conservative (as I recall only Treasuries did well in 2008).
For example, using LCORX:
https://www.morningstar.com/funds/xnas/lcorx/performance
This M* piece may help to see the fine distinctions among the various alternative fund categories and more broadly the difference between alternative funds and allocation (tactical or otherwise) funds. The section entitled "What Are Alternatives?" is a good starting point. There is another paragraph that explains why DRRIX is classified as tactical allocation rather than multistrategy or macro trading (REMIX has drifted between those two). This explanation is helpful in the context of this thread.
https://www.morningstar.com/funds/xnas/blndx/performance
Different types of funds react differently to varying market conditions: