AJM - Abstracts

Tactical Asset Allocation: Australian Evidence

Robert Faff, David R. Gallagher and Eliza Wu

Abstract

This paper evaluates the tactical asset allocation (TAA) capabilities, strategies and behaviour of Australian investment managers who invest assets across multiple asset classes. Specifically, we analyse the behaviour of balanced, growth and capital stable fund managers with regard to their asset allocation activity across defensive (cash, domestic bonds, overseas bonds) and growth (domestic equities, international equities, property) asset classes, over the period December 1989 to February 2001. Overall, our evidence suggests that active managers have been unable to deliver investors with superior returns through tactical asset allocation. While the most successful asset class, domestic equities, has been value enhancing, international shares and domestic fixed interest have generally detracted value. Finally, across all asset classes examined, our findings suggest that asset allocation into domestic equities is the most influenced by public economic information variables, with short- term interest rates, the term structure and dividend yield all having a significant explanatory role.

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Keywords

TACTICAL ASSET ALLOCATION; MULTI-SECTOR FUNDS; STRATEGIC BENCHMARKS; PERFORMANCE ATTRIBUTION.

Contact Details
Robert Faff
Department of Accounting and Finance
Monash University, Clayton, VIC 3800.
David R. Gallagher
School of Banking and Finance,
The University of New South Wales,
Sydney, NSW 2052, Australia
E-mail: david.gallagher@unsw.edu.au

Eliza Wu
School of Banking and Finance,
The University of New South Wales,
Sydney, NSW 2052, Australia

We thank an anonymous referee and Garry Twite (Finance Editor) for helpful comments on an earlier version of the manuscript. The authors also gratefully thank Mercer Investment Consulting for the provision of the asset allocation dataset. David R. Gallagher gratefully acknowledges research funding from Mercer Investment Consulting.