Cyclical tactical asset allocation

Cyclical tactical asset allocation

Stock price and bond yield movements are connected to changes in the economic environment. The cyclical approach to Tactical asset allocation involves monitoring economic environment for patterns that have historically led to trends in stock market movements. These are guidelines that can be followed to ascertain changes in market direction to a varying level of accuracy. This is very helpful to the investment decision since an exact reversal point is practically impossible to determine. Investors can use this information to improve their performance by modifying their strategic asset allocations.

In this way, an investor with an asset mix of stocks and bonds could use the cyclical approach to tactical asset allocation to rebalance their weighting in a favorable manner based on the economic cycle. For example, the investor could increase the allocation in bonds and decrease the allocation in equities when it is expected that the economy is heading into a recession. Historically, bonds have outperformed stocks in recessionary periods and that would be the reason for this decision.


  • CSI Global Education Inc. (2007). Investment Management Techniques. Toronto: Canadian Securities Institute. pp. 5–18. ISBN 1-894741-54-4. 

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