Definition
The term dynamic asset allocation refers to an investment approach that actively rebalances the assets in a portfolio in response to market conditions. Dynamic asset allocation typically involves moving the funds from one asset class to another based on the portfolio manager's longer-term performance expectations.
Explanation
Dynamic asset allocation, also known as DAA, refers to an active investment strategy that adjusts the allocation of assets in a portfolio in response to longer-term performance expectations. This strategy is typically used with investments such as mutual funds, index funds, and hedge funds.
The objective of DAA is to maintain a mix of asset classes that are aligned with the investor's desired risk exposure as well as their expectations of future performance. Unlike strategic asset allocation (SAA), there is no target mix of asset classes to maintain. The portfolio manager will change allocations based on their forecasts of market trends. While a tactical asset allocation (TAA) fund will actively change their investments based on near term trends, dynamic asset allocation takes a longer term view. In terms of a rebalancing continuum, TAA is the most active, SAA the least active, and DAA falls somewhere in between these extremes.
Related Terms
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