Superannuation funds and other institutional investors are increasingly adopting dynamic strategic asset allocation, according to a new research paper released by Watson Wyatt.
The research paper said while superannuation funds and other investors were continuing to set their strategic asset allocations they were increasingly changing their allocations with shorter-term time horizons in mind, giving rise to the term dynamic strategic asset allocation (DSAA).
Explaining the approach, the Watson Wyatt paper said while tactical asset allocation (TAA) aimed to make profit by predicting the movements of investment markets over short-term periods, DSAA involved decisions made over a longer time horizon.
“Decisions are typically made and implemented by the fund fiduciaries rather than investment managers and DSAA positions tend to be long-only exposures in both liquid and illiquid asset classes,” it said.
The Watson Wyatt research concludes with the view that a well-structured DSAA program can deliver rewards in the form of risk reduction and return enhancement but added that it was by no means guaranteed to do so.
