SD-01.5 — Tactical & Dynamic Asset Allocation
Business Domain: BD-01 Investment Strategy & Allocation (Front office) · Applies: BOTH
Purpose
Manages medium-term deviations from the strategic allocation — the shorter-horizon, signal-driven adjustments made within the policy bands to exploit relative-value views or respond to the market regime. Tactical asset allocation acts on short-horizon expectations; dynamic asset allocation acts on a longer, regime-aware set of expectations. Both are the ongoing counterpart to the periodic strategic decision: SD-01.4 sets the baseline allocation, and this Service Domain deviates from it under delegated discretion. The split from SD-01.4 is one of time horizon and governance, not asset class.
Service Operations
- Monitor relative value across asset classes — valuation and signal monitoring of each asset class against its history and fair value.
- Form tactical and dynamic views — the medium-term thesis for deviating from the strategic weights, on short-horizon signals or regime-aware expectations.
- Size tactical tilts within policy bands — set the over- or under-weight against each asset class, bounded by the SD-01.4 policy bands.
- Direct tilt implementation — hand the sized tilt to portfolio construction and overlay management (BD-05) for physical or synthetic expression.
- Monitor and review tactical positions — track each tilt against its thesis and its band, and exit when the thesis is invalidated or the horizon is reached.
- Govern the tactical mandate — the delegated discretion limits and approval levels under which tactical deviation operates.
Inputs and outputs
- Inputs: the strategic allocation and policy bands (SD-01.4); the house view and asset-class outlooks (SD-01.3); market data.
- Outputs: sized tactical and dynamic tilts — handed to BD-05 Portfolio Management for implementation (SD-05.4 Overlay & Hedging Management expresses them physically or synthetically) and monitored against thesis and band.
Entities
- Consumes: Asset Class (E-09), Price & Market Data (E-08), Portfolio / Mandate (E-03), Benchmark / Index (E-10); the SD-01.3 house view and asset-class outlooks; the SD-01.4 strategic allocation and policy bands.
- Owns: the tactical-tilt set as an analytical artefact.
Standards
- The CFA Institute treatment of tactical and dynamic asset allocation — the distinction between the two being the horizon of the expectations input, not a different activity. No single external standard governs tactical signal generation.
Open extensions
- The boundary with SD-05.4 Overlay & Hedging Management — where the tilt decision ends and the overlay implementation begins.