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TAA - Is It Applicable to Hedge Funds? Print E-mail

The TAA (Tactical Asset Allocation) framework implies constructing fund portfolios based on their labeled strategy and pattern behavior of the corresponding indices. While commonly used by most institutional managers for hedge FoF construction, it presents a highly misleading concept:

  • Fund managers may use multiple strategies, which makes it difficult to categorize
  • The whole TAA framework relies on the style-weighted allocation (read index-weighted allocation) that predetermines allocation across individual funds. Since the majority of hedge funds are not correlated with their corresponding indices, the applicability of the TAA becomes questionable.
The TAA framework should not be applied for constructing portfolios of hedge funds (hedge fund of funds) .

Tactical Asset Allocation

Tactical Asset Allocation: why it is inapplicable to hedge funds. Major problems and drawbacks of TAA for hedge funds. Analysis of correlations between individual funds and their indices. Outlining Quant Suite alternative solutions. Duration 10:15 min.

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