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Stéphane Girard
MBA, CIMTM, Fin. Pl.

Investment Specialist, Products Knowledge

Special skills

In two articles published recently, you learned about the importance of static allocation and strategic allocation in managing your portfolio. In the last article in our series, we will explore in greater depth the last component of your portfolio’s performance, tactical allocation.

Move at the right time

At the top of our performance pyramid is tactical allocation, also known as “tactical deviation.” At this stage of the process, a portfolio manager has the option of increasing the exposure of a fund or of a Private Management approach to certain markets on a more temporary basis.

The components of superior portfolio performance

The manager’s decision is based on a much shorter investment horizon than that used for strategic allocation and, of course, it revolves around this period. For example, our FDP Tactical Asset Allocation Private Portfolio (available in Private Management) is based on an investment horizon (or duration) of 6 to 12 months. Our team positions its mix of equities and fixed-income securities according to market forecasts for this period.

Deciphering trends

The decisions regarding the weighting of stocks and bonds in this FDP Private Portfolio are major, but they are not the only ones to consider. For example, in the equity portion of this fund, our external manager chose to increase its exposure to growth stocks and technology issues. The manager also reduced the weighting of Canadian equities and overweighted U.S. stocks. All these moves show that managing a fund like the FDP Tactical Asset Allocation Private Portfolio involves a host of decisions based on current trends.

But since this fund is not the “day trader” type, our managers can also deliberately decide not to change anything if they deem this option appropriate. The quality of tactical decisions is not measured by the number of trades made, but by their relevance in a given context.

Calculated decisions

If you hold your assets in Private Management, you should know that the FDP Tactical Asset Allocation Private Portfolio is far from the only source of tactical allocation for your portfolio. Another is strategic allocation (target) drift. Let me explain: our tactical team of managers may deliberately decide to let a fund grow in a portfolio when they believe it is a win-win situation for the client. Conversely, the team will rebalance the portfolio to meet its target if it concludes that the situation unnecessarily increases risk for the investor.

The contribution of external managers

Our external managers can also add some tactical deviation to the portfolios. As part of their mandate, they have the freedom to adjust the composition of their portfolios according to market events. Of course, they have to manage the portfolio within certain limits that we set for them, but they still have a lot of leeway, because we want them to be able to use all their management skills for the benefit of our clients.

Temporary, deliberate decisions made by our external managers and by the Financial’s investment team can add about 10% to the total return of the portfolio.

The cherry on the cake

Like strategic allocation, tactical deviation can improve a portfolio’s performance and stability, but again, this is just one of several required elements in building an effective portfolio.

Tactical allocation cannot offset poor strategic allocation. Obviously, the components of the portfolio must also be of good quality. Overweighting a poor-quality component will not increase the quality of the portfolio. Tactical allocation is an important complement to excellent static allocation and sound strategic allocation.

If we go back to the culinary analogy used previously, we could compare tactical allocation to the cherry on a cake. If the cake is moist and tasty, and the icing is creamy, the dessert will be a success.

Have questions about this article, or about our series on the components of portfolio performance? Your Professionals’ Financial advisor is available and ready to talk with you: contact him!


Stéphane Girard, MBA, CIMTM,Fin.Pl.
Product Manager, Professional Practice

The information contained herein has been obtained from sources deemed reliable, but we do not guarantee the accuracy of this information, and it may be incomplete. The opinions expressed are based upon our analysis and interpretation of this information and are not to be construed as a recommendation. For any questions, don’t hesitate to contact your wealth management advisor or your tax specialist, accountant or legal advisor.


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