The EVA Style Approach to Tactical Asset Allocation

Abstract

We refine tactical asset allocation (TAA) by arguing that the equity style component of a TAA strategy should distinguish between—and rotate among—predefined value creators and value destroyers in the marketplace. We assess equity style in the context of an economic profit approach to securities analysis and active portfolio management. We illustrate TAA in the context of an economic value added style analysis, and we demonstrate both the macroeconomic aspects and cyclicality of economic profit and its equity rotational implications for TAA. We conclude with a look at some well-known value creators and value destroyers, as well as known market anomalies that can also drive an economic profit approach to TAA and active portfolio management.

TOPICS: Portfolio construction, style investing, financial crises and financial market history