In the third part on the series on tactical asset allocation techniques based on market timing, we evaluate the Market PE and Ten-month moving average methods over five-year vs ten-year periods and also change the equity allocation in the portfolio from 30% to 50% to 70%. In addition, we also use the method followed by Franklin Dynamic PE fund of funds. This time we also use Franklin India Blue Chip Fund for the Equity component and
Warning and Disclaimer
The following is to be treated as investment research based on past data unrepresentative of practical implementation and is not investment advice. They do not factor in behavioural/emotional aspects associated with investing. If you do not know how to understand a backtest result, evaluate its disadvantages, then please, please DO NOT play with your money using market timing. Please watch this video before proceeding further.
What is meant by tactical asset allocation (TAA)?
Asset allocation is the ratio of much equity, fixed income, gold, cash etc. is present in a portfolio. We will only consider equity and fixed income in this study. Tactical asset allocation (TAA) refers to changing these allocations based on certain factors or indicators.
What is market timing?
It is a technique to reduce portfolio risk and/or enhance portfolio returns by changing asset allocation based on our reading of where the market will head in the near future. This can be the stock market, bond market, gold market etc.
Is tactical asset allocation necessary?
Yes, as the risk associated with a portfolio must be systematically reduced or contained to ensure we have enough money for our future needs.
Is market timing necessary?
No. Tactical asset allocation is necessary and one need not resort to market timing to do this. TAA is possible based on a target corpus associated with a financial goal. See:
Can we time the market?
Yes. However, realistic and reproducible market timing methods have often primarily reduced risk with or without return enhancement. See results here: Want to time the market with Nifty PE? Learn from Franklin Dynamic PE Fund and here: Is it possible to time the market?
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